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How do I report a loss from an installment sale when the buyer quits making payments?

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Level 4

Client sold his business in 2015 in an installment sale. Payments were supposed to be made through July 2020. TP did not receive any payments in 2019 and the buyer isn't planning to make any more payments.

I have an email in to the TP asking if he is taking any legal action. Knowing the TP he may not be.

How do I report the loss from this installment sale? Do I delete the F 6252 in the 2019 program and report the loss in the top section of F 4797?

I searched the help section to see if this has been addressed in the past but no results were found.

Thank you for your help.

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10 Replies 10
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Level 11

"Business" is too vague if you want a real answer. Go to Pub 537, it has lots of information.  Was it real estate, personal property, intangibles, inventory?  And he hasn't yet filed a 2019 return?  If repossession is possible, just file the 6252 showing zero payments received during year.  

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Level 4

Sorry. I thought I had mentioned it was a liquor business. I see that I didn't.

I'm expecting the client to tell me he isn't taking legal action so I just want to be prepared to know how to handle this if 2019 is the last year and there is no chance of repossession or recovery. He expects to write off the loss in 2019.

Thanks for your help.

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Level 15

@david3 What was sold? Liquor license? Equipment? Fixtures? Goodwill? .... What did the 8594 form look like in year of sale?

So many questions? So few details.

Bottom line, your simple question is not so simple. 


ex-AllStar
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Level 4

George, yes I realize that and will be digging deeper into this.

Thanks.

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Level 11
Level 11

As Bob said need more info, and hope client saw a pro before selling business as you can't sell most things in a business The installment method can be used to defer some tax on capital gains, as long as you receive at least one payment for a piece of property after the year of the sale. It can't be used if the sale results in a loss.

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Level 4

Thanks, Terry for your input.

The TP sold the liquor store prior to becoming my client. I continued the 6252 from his prior tax returns.

The loss I am referring to is the loss from not receiving the remainder of the installment sale payments. There was a gain when the business was sold.

Thanks again.

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Level 11
Level 11

I think there are way too many details needed for you to get an answer on this site. You will have to do a lot of research starting as @BobKamman  said with pub 537. Good Luck

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Level 4

Yes. I'm planning to do that.

Thanks.

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Level 5

 What loss? Isn't he going to repossess the business? Technically doesn't he still own it until it is fully paid for?

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Level 4

I am in the process of finding out what he is going to do. I want to be prepared if he comes back and says he isn't pursuing legal action.

I agree, he should have some recourse and there should be no loss.

Thanks for your input.

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