Installment Sale Income - IRS Form 6252

[desert5898]

In March 2018, I sold a rental property on the installment basis.  For my 2018 return, Form 6252, I typed in the following values:

1) Selling price - Part I, Line 5

2) Mortgages, debts - Part I, Line 6

3) Basis of property sold - Part I, Line 8

4) Depreciation allowable - Part I, Line 9

5) Expenses of sale - Part I, Line 11

6) Gross profit percentage - Part II, Line 19

For my 2019 return, TurboTax copied over the gross profit percentage from 2018 but did not do so for the other fields that I entered.   However, on the 2019 6252 form, I was able to enter manually the values for everything except the depreciation allowable field.   The only way to enter a value for depreciation allowable field was to override the field.  

The first question I have is why didn't TurboTax copy over from the 2018 the following?  They were the same figures that need to be entered into Form 6252 for each year of the installment sale, so if Turbo Tax can copy over the gross profit percentage, which is the result of entering the selling price, mortgage value etc..., why couldn't it also copy over these other lines?

1) Selling price - Part I, Line 5

2) Mortgages, debts - Part I, Line 6

3) Basis of property sold - Part I, Line 8

4) Depreciation allowable - Part I, Line 9

5) Expenses of sale - Part I, Line 11

Finally, I hate overriding a field and manually entering a value since it almost always means that I've entered something wrong in TurboTax elsewhere.  Does anyone have an idea what I might have done wrong to have to override Part I, Line 9, Depreciation allowable?

[MaryK4]

The depreciation allowable should only be included in the first year- You must report any portion of the capital gain from the sale of depreciable assets that's ordinary income under the depreciation recapture rules in the year of the sale so it should not be overridden in subsequent years.  Since this is applied to the first year of the Installment Sale, the other values are also adjusted accordingly.

[richholladay]

I was having a similar problem generating a correct Form 6252 without resorting to making changes on the form itself. I sold real estate in 2010 so TurboTax did not have access to data from my first year of sale.  I eventually forced the program to yield correct numbers by entering the number from line 13 (rather than line 😎 from my original 2010 Form 6252 into TurboTax when it asked for the “cost or other basis of this property”.  Line 13 is actually the original “cost” less “depreciation” plus “commissions and other expenses of sale”.  TurboTax put this amount on lines 8, 10 and 13 of my 2019 6252, leaving depreciation (line 9) and cost of sale (line 11) entries blank.  Was this the correct way to handle the problem? Can I file my taxes with the 6252 showing these numbers rather than the detail shown in 2010? 

[MaryK4]

Yes, the subsequent years do not include the depreciation and sales expense- rolling it into the basis.

[desert5898]

Thank you so much for having taken the time to reply my question about installment-sale income.   I'm still confused though on how to proceed for TY2019.   I looked at my 2018 Turbo Tax return and wonder whether it was done correctly.  

On Form 6252, I completed the following:

1) Selling price - $245,750

2) Mortgages, debts - $119,700

3) Basis of property sold - $206,550

4) Depreciation allowable - $59,261

5) Expenses of sale - $147,289

6) Gross profit percentage - $3,110

There were also the gross profit of $95,171 and the contract price of $125,870, creating a gross-profit percentage of .7561.   When the principal payments of $10,135 were multiplied by the gross-profit percentage of .7561, you got an installment-sale income of $7,663.

According to the Unrecaputured Section 1250 Gain Smart Worksheet, Turbo Tax took the total installment-sale gain of $7,663 and divided it into long-term capital gains of $532 (taxed at 0%, 15% or 20%) and unrecaptured Section 1250 gain of $7,131 (taxed at 25%).

Turbo Tax then took the unrecaptured Section 1250 gain of $7,131 and subtracted it from the total unrecaptured Section 1250 depreciation of $59,261 to arrive at the "Unrecaptured Section 1250 depreciation carryover to 2019," which is $52,130. 

However, for the instructions for Form 6252, it states:  "Any ordinary income recapture under section 1245 or 1250 (including sections 179 and 291) is fully taxable in the year of sale even if no payments were received. To figure the recapture amount, complete Form 4797, Part III.  The ordinary income recapture is the amount on line 31 of Form 4797. Enter it on line 12 of Form 6252 and also on line 13 of Form 4797."

On my 2018 return, though, Line 31 of Form 4797 and Line 12 of Form 6252 state $0.  

So, I'm not clear why Turbo Tax created a taxable 1250 gain on only part ($7,131) of the total unrecaptured Section 1250 depreciation of $59,261 with a carryover to 2019 of the difference.  Can you help me with this?

[desert5898]

I have a couple of corrections to my post below.

5) Expenses of sale - $3,110

6) Gross profit percentage - .7561

[RobertG]

First of all, the reason there is a carryover is that it's an installment sale. In an installment sale, you do not claim all of the income in the year of the sale; it is spread out. Thus, the Section 1250 recapture will also be over time.

Second, there is a difference between section 1250 unrecaptured depreciation and ordinary income recapture.

There is no ordinary income recapture (per Form 4797), because the depreciation of the rental is straight-line depreciation. No additional recapture is necessary, so Form 4797 line 31 will read $0 as will Form 6252 line 12.

[desert5898]

Robert,

Thank you very much for having replied.   I'm still unclear on one issue though.  

On Form 6252, Part I, Turbo Tax carried over the calculated gross-profit percentage from my 2018 return but left blank the following. 

1) Selling price - $245,750

2) Mortgages, debts - $119,700

3) Basis of property sold - $206,550

4) Depreciation allowable - $59,261

5) Expenses of sale - $3,110

I'm not clear why Turbo Tax asked me to complete these fields but carried over the gross-profit percentage from 2018.  Do you know why this is so? 

Also, I couldn't enter anything into the depreciation field and had to override it to put in a value.   Overriding is considered a last resort, and I don't like doing it unless I've exhausted all the other options.  Do you know why a value for the depreciation field can't be entered?

Thank you.

[DianeC958]

The depreciation cannot be entered because you only need to enter the sales information in the year of sale. Since the year of your sale is 2018 you do not put in all of that information again.

For the rest of the years you only need to enter the amount of installment sale income you received.

[desert5898]

Diane,

Thank you for having responded.  I'm still not clear though.  Form 6252, Part I, Gross Profit and Contract Price, states:  "Complete this part for all years of the installment agreement." 

The fields to be completed are:

Selling Price

Mortgages

Basis

Depreciation
Expenses of Sale

Depreciation is the only field that won't let you enter a value.  However, if you fill in the other 4 fields listed above but leave Depreciation blank, it calculates the gross profit percentage incorrectly, requiring you to override this field to enter a value for it and arrive at the correct gross profit percentage.

The other thing I don't understand is why Turbo Tax transfers the gross profit percentage from the previous year but not the fields listed above on which the gross profit percentage is based.  I tried to complete the return by leaving the fields listed above blank, leaving just the gross profit percentage, but Turbo Tax wouldn't let me finalize the return.

Can you clarify this for me?

Thank you again for taking the time to respond.

Rich

[llhsll2019]

Did you ever receive the answer to your questions?  Have you tried updating your tax program?  I have been able to enter all prior year data since updating the program.

[tj-21]

Thank you Robert G !

I've talked to many people at Turbo Tax and you are the only one that can explain this correctly.

I am trying to enter an installment sale for a rental property I sold in 2017. I had an accountant do the last several years of returns, and would like to do them myself now.

When I enter this thru installment sales, it doesn't ask for depreciation, the only way I can get the gross profit margin correct is to subtract the depreciation. When the form 6252 is populated, the info in Part 1 is not the same as the year of sale, I am able to correct the fields to match the year of sale. The "big" problem is the amount from line 26 should be transferred to Schedule D line 19 (Unrecaptured Section 1250 Gain Worksheet), but it is not transferred. It is using the line 20 Qualified Dividends and Capital Gain Tax Worksheet, which is incorrect. I need to recapture the 1250 gains up to 25% to the amount of my depreciation, after that then the remaining gain is at the Qualified Dividends and Capital Gain rates. How do you get this corrected? I looked at the 1250 Unrecaptured Section 1250 Gain Worksheet and it is blank. I can add the amount but I have to override it. I'm told you cannot override things in Turbo Tax, if you do you can't e-file. I am using the Desktop CD download Home & Business.

Can you help??

[tj-21]

I am trying to enter an installment sale for a rental property I sold in 2017. I had an accountant do the last several years of returns, and would like to do them myself now.

When I enter this thru installment sales, it doesn't ask for depreciation, the only way I can get the gross profit margin correct is to subtract the depreciation. When the form 6252 is populated, the info in Part 1 is not the same as the year of sale, I am able to correct the fields to match the year of sale. The "big" problem is the amount from line 26 should be transferred to Schedule D line 19 (Unrecaptured Section 1250 Gain Worksheet), but it is not transferred. It is using the line 20 Qualified Dividends and Capital Gain Tax Worksheet, which is incorrect. I need to recapture the 1250 gains up to 25% to the amount of my depreciation, after that then the remaining gain is at the Qualified Dividends and Capital Gain rates. How do you get this corrected? I looked at the 1250 Unrecaptured Section 1250 Gain Worksheet and it is blank. I can add the amount but I have to override it. I'm told you cannot override things in Turbo Tax, if you do you can't e-file. I am using the Desktop CD download Home & Business.

Can you help??

[gloriah5200]

When you have an Installment sale of a property where you get payments each year after the year of sale which contain principal and interest in them, then each year you will need to use the original gross profit % calculated to determine the amount of interest income to claim each year and the amount of capital gain to claim each year.

The information that goes into the F6252 form to calculate the gross profit percentage only needs to be entered the year of the sale.  The gross profit % is the only information needed on future year returns to be used to calculate the gains for each of the future years based on the amount of principal received each of those future years.

[tj-21]

Gloria,

Please read below, which is located to the right of Part 1 heading on form 6252:

"Part I
Gross Profit and Contract Price. Complete this part for all years of the installment agreement."

Form 6252 Form instructions under What's New:

What’s New
Installment sale reporting. In 2020 and later, if you have an outstanding installment sale balance after the initial year, complete lines 1 through 4, Part I, and Part II for each year of the installment agreement. If you sold property to a related party during the year, also complete Part III.

Instructions for line 26:

"If the property was section 1250 property (generally, real property that you depreciated) held more than 1 year, figure the total amount of unrecaptured section 1250 gain included on line 26 using the Unrecaptured Section 1250 Gain Worksheet in the Instructions for Schedule D (Form 1040)."

If you read the whole request, when I enter my information under installment sale, the amount from line 26 is not flowing to the Section 1250 Gain Worksheet. This is what I need help with.

[gloriah5200]

You are absolutely correct, the form now says to complete lines 1-4, Part I and part II for all years of the installment sale.   

Please look to see if the amount from line 26 is carrying to the correct forms and lines of those forms even if you don't see it on a worksheet?

When you complete the information requested in the Installment sale section of TurboTax, it carries the  amount from the Form 6252 line 26 to the Form 4797 line 4 or Form 4797 line 10, depending on the holding period of the property sold.  Then, if the property was section 1250 property TurboTax carries it into Sch D.