SEE IF USING THE INSTALLMENT SALE METHOD OF REPORTING PRODUCES THE CORRECT RESULTS
For failed 1031 exchanges that straddle tax years, taxpayers may seek installment tax reporting on IRS Form 6252 in the year of the relinquished property sale. If the 1031 exchange fails by non-identification or by failure to purchase a replacement property, the sale proceeds would be returned to the exchanger in a different tax reporting year. In this circumstance, the IRS allows taxpayers to either report the gain in the year of sale or in the year the proceeds were received under IRC 453 installment sale rules.
BEWARE
Installment sale treatment generally requires a bona fide intent to complete an exchange. This means that the taxpayer had reason to believe, based on the facts and circumstances at the beginning of the exchange, that a like-kind replacement property would be acquired during the exchange period.
Other installment sale issues:
If there was debt paid off at closing of the relinquished property and gain associated with this debt, generally recognized in the year of sale. (This could happen if there have been cash-out refi's)
Depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale.
A charge paid by a borrower to a lender for the opportunity to borrow funds via a loan or the funds earned by an account owner/beneficiary on the amount held on deposit.Interest is charged on the tax deferred if the sale price of the relinquished property is over $150,000 and certain other instalment obligations exceed $5 million.
using the installment method you report cost which would include remodeling cost.
