I sold a rental property with payments split between 2020 and 2021. Reporting it using installment method show the entire amount as 2020 capital gain. How do I fix it?

[DianeW777 · Accepted solution]

There may be nothing to fix. Any gain to the extent of depreciation claimed in prior years will be taxable in the year of sale.  It sounds like all of the gain is attributable to depreciation.  In other words if the gain on the sale is not more than the depreciation claimed while the property was owned and rented, then all of the gain is taxable in the year of sale.  If there were any gain in excess of that amount you would be allowed to use the balance under the installment method.

If this is the case then choosing to report it on the installment method has no benefit or value to you.  Interest will be included like other interest and you can eliminate using the installment method.

If no interest is stated in the contract, you may have 'unstated interest' to report. You can find out more in IRS Publication 537.

• IRS Applicable Federal Rates of Interest