How do I enter Sale of Vacant Land with REC?

[Clockwork-12]

In 2021 I sold vacant property for $135K.  Buyer paid $70K cash and $65 on REC. The cost basis is $140,790. The REC  is for 3 years at 5% interest and will enable me to come close to breaking even in the long run.  How do I enter this sale in Turbo Tax as the installment sale category doesn't allow for a loss?  The investment sale category doesn't allow or provide opportunity for installment payments. Is there a specific form I just insert somehow? 

[ColeenD3]

Unfortunately, Form 6252 Installment Sales, does not allow for a property sold at a loss. You would deduct the loss in the tax year of the sale. Report the entire sale on Schedule D of your tax return as a Capital Loss.

Situations Where the Installment Method Isn't Permitted

Installment method rules don't apply to sales that result in a loss. You can't use the installment method to report gain from the sale of inventory or stocks and securities traded on an established securities market. You must report any portion of the gain from the sale of depreciable assets that's ordinary income under the depreciation recapture rules in the year of the sale. For additional situations and information about when you can't report payments on the installment method, see Publication 537, Installment Sales.

Reporting Interest

You generally report interest on an installment sale as ordinary income in the same manner as any other interest income. If the installment sales contract doesn't provide for adequate stated interest, part of the stated principal may be recharacterized as unstated interest or original issue discount for tax purposes, even if you have a loss. You must use the applicable federal rate (AFR) to figure the amount of stated principal recharacterized as unstated interest or original issue discount. The AFRs are published monthly in the Index of Applicable Federal Rates (AFR) Rulings.

[Edited 2/8/2022|4:50 PM EST]

[Clockwork-12]

Thanks for responding!  Would I enter the the sale (as if a done deal even though it is an installment) and declare the overall loss for 2021 and then enter the interest received as income for 2021 and subsequent years? 

[PattiF · Accepted solution]

Yes, you would deduct the loss in the tax year of the sale. Report the entire sale on Schedule D of your tax return as a Capital Loss.

The Interest income from the sale will be reported yearly on the Interest from the Seller-Financed Loan section of TurboTax.