So my dead dad entered into a Purchase Money Trust Deed with a previous renter in Late 2019, he received payments for it until he passed in March of 2020, and the estate has been receiving those payments since his passing and will continue to do so for 13 years. So on his very last taxes he worked on in 2019, he reported the sale under Form 4797 for it's full sale price and capital gain, despite it qualifying for Form 6252, and therefore was taxed for the full capital gain he experienced.
Now on the IRS website it says:
Publication 537 - Installment Sales
How to elect out. To make this election, don’t report your sale on Form 6252. Instead, report it on Form 8949, Form 4797, or both.
Form 6252 (Installment Sale Income) Instructions
Don’t file Form 6252 if you elect not to report the sale on the installment method. To elect out, report the full amount of the gain on a timely filed return (including extensions) on Form 4797, Form 8949, or the Schedule D for your tax return, whichever applies.
So when it says elect out, what does that mean?
That the direct to bank account payments from the buyer don't need to be reported as income because my dad has already reported the capital gain on the property and paid the taxes on it?
My poor understanding of selling a house is that what you pay taxes on is the capital gain, the difference between what you paid for it and investments into it vs the sale price. I sold the house he was living in through the estate and so far looks like I will be paying no capital gain taxes on it, because it was sold so quickly after his death and from it entering the estate the FMV barely budged. This is despite it also being a rental within the past two years, he only having moved into it in Early 2019.
If this other house had been fully paid off by his previous renter that day I would be done reporting to the IRS on it, so I just am really trying to understand if there is more to report because of how he originally filed it and being elected out of something.
Any guidance from experts would be helpful.
-A lost mid-20s Personal Representative just trying to do everything myself as much as possible the way he taught me
