April 23rd, 2010
If you sell property and take back the loan for installment payments do you still have to pay capital gains?
I sold a property for $250K which I paid $50K for 20 yrs ago. I’m holding the loan and receiving monthly installment payments from the buyer. Do I still have to pay capital gains on $200K even though I haven’t received the lump sum proceeds?
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Filed under: Sell Property
Yes….but only as you receive the payments.
Each payment will have three parts: Basis, Capital Gain, and Interest. The basis is not taxed, the capital gain is taxed at 15% and the interest is taxed as ordinary income.
Installment Sales on the tax return are very complex. You should not it on your own. Take it to a professional.
Yes, unless it was an installment sale
Assuming this wasn’t your personal residence, you have a choice.
You can either recognize the gain in the year sold (just list sale on schedule D) or you can recognize the gain pro-rata as you receive each payment.
Since the payments exceed one year, you *will* have interest income as well as return of basis and principal. This is true even if the agreement doesn’t actually state the interest rate.
See form 6252. (the interest isn’t calculated on the form–and you will have interest even if you opt out of the installment sale aspect).