Contract for a 2nd house sale states that payments by buyer must complete by October 2019. Buyer was late on payment. Buyer paid 75% of the house price in 2019, and 25% in early 2020.
Do I have to file 75% income/capital-gains in 2019, and 25% income/capital-gains in 2020 and ignore the contract pay by dates?
This is reported as an installment sale and the income is apportioned over the two years of payment.
If this is an installment sale of a second home that was not used as rental property or for some business purpose, follow these directions:
If the property was used as rental property or some business purpose, an installment sale question is among the questions in the sale of the business asset.
Thanks @JamesG1 for the very quick reply!!!
Based on your advice, I went to IRS.gov to read more about using the installment method.
Please give your opinion if what I read is interpreted to mean that I have a choice whether to account for all the capital gain in 1 year, or split it between 2019 and 2020 based on the amount of money received in each year.
See pub 537: https://www.irs.gov/pub/irs-pdf/p537.pdf
Between page 4 and page 5, I read the following:
Electing Out of the Installment Method
If you elect not to use the installment method, you generally report the entire gain in the year of sale, even though you don’t receive all the sale proceeds in that year.
...an example is shown, and then it states the following:
"How to elect out. To make this election, don’t report your sale on Form 6252. Instead, report it on Form 8949 or Form 4797, or both.
When to elect out. Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place."
Yes, you can opt out and take the entire gain in the year of sale. Most people would prefer to spread out the income and tax due. You do what works best for you.