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sale of rental property on installment basis

Summit1
Level 3

Client sold rental property in 2021. This will be an installment sale with an initial down payment. Can the entire transaction ( with the exception of interest ) be done on the 6252 or do I need to do a 4797 also. I haven't done one of these in years.

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13 Replies 13
Just-Lisa-Now-
Level 15
Level 15
I think there's a way to link the disposition on the asset entry worksheet to the 6252.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
Summit1
Level 3

Thank you! I will try that and see what results I get. Right now I am just trying to get the taxpayer an amount to pay in estimated tax. I will go back into their 2020 return and try it there.

PATAX
Level 11

I have done quite a few of these in the past but I am away from my office now but here is what I remember offhand : you have to allocate the sales price and the selling expenses, like real estate commissions paid, to each of the assets sold, on the asset entry worksheets for Sch E, and you have to make sure like Lisa said that you link this up to form 6252.. Pro Series does a good job on this and it should automatically complete the form 4797 for you based on what you enter on the asset entry worksheets... there will be a location for you to enter the principal payments received and the interest received for current year... it will be a little tricky at first but once you get the hang of it it's not that bad .... just my opinion ... Hope this helps

Summit1
Level 3

Thank you very much for the additional information and advice. I will work on this and see what the results are. If I have additional questions or need some clarification, I will post additional questions.

PATAX
Level 11

You're welcome

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linduca1216
Level 5

Seems so strange that a capital improvement of a door, for example, goes up in value.   I allocated the sales price to the assets in an excel spreadsheet based on item/improvement cost over the entire cost basis..  Would another acceptable method be to enter zero on the individual asset sheets and place the entire gain on the orig purchase depreciable portion and land?   I imagine some 1245 may show a loss where there might be a gain if using the allocation method.   

Don't know how "picky" IRS would be on this..   Since property had improvements, and 1245 assets added throughout at least 10 years, it ends up being a lot of separate entries....

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PATAX
Level 11

@linduca1216 👍you did it the right way and allocated the sales price to all of the assets.... I would not cut corners and try to use another method....just my opinion...

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dkh
Level 12

I had a client that had lots and lots of improvements for a property - so I lumped all the improvements with the original building cost into one asset entry. I used the supporting statement feature to enter everything in cost and depreciation.   Then I deleted all the asset entry worksheets that were lumped into the original cost.  

Note - I printed a depreciation schedule prior to lumping and deleting.

linduca1216
Level 5

that's what I was thinking might be the most expedient thing to do.   There were a few 1245 assets that would cause a somewhat different (though not particularly significant) difference in the deprec recapture, etc., but might hardly be worth the exercise.  

dkh
Level 12

If there is an asset not fully depreciated - mark it sold - print out the asset entry worksheet for detail on what the depreciation allowed is - then delete.   Enter the depreciation deduction on the original asset that you are lumping everything into.  You will have to do an override to enter the depreciation.

 

linduca1216
Level 5

I'm thinking I could leave that asset as is rather than lump it in w/ the others and allocate part of the sales price to it...

dkh
Level 12

Yep - save the hassle of doing an override

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PATAX
Level 11

@dkh thanks for the information... If the tax is exactly the same using either method and the IRS accepts it then all is good imo....