Tax Treatment on Sale of Real Asset

[neotrin]

I have a cash basis business and sold the business and the property with a gain. For payment, I extended a loan to the buyer and they pay me in monthly installments for the next 4 years. Is the total gain treated as income on the year it was sold or as I receive the monthly payments?

[DianeW777]

It depends.  This is considered an installment sale and you may choose to use this method if it applies to your situation.  

Any gain to the extent of depreciation recapture is taxable in the year of sale.  If you have gain in excess of the depreciation recapture, this portion can be claimed over the four year period of the installment sale. Form 6252 is used for an installment sale.

• How do I report an installment sale?
• IRS Topic 705

Form 8594 - Asset Acquisition Statement - Important Information

Both the seller and purchaser of a group of assets that makes up a trade or business must use Form 8594 to report such a sale if:

• goodwill or going concern value attaches, or could attach, to such assets and
• the purchaser's basis in the assets is determined only by the amount paid for the assets.
  • This form would be the same for both.

Please update here if you need further assistance.