How can TurboTax compute my Installment Sale Income to be $102,048 when the sales price was $120,000 and the note carried back was $110,000. Asset held for 38 years

[TaxGuyBill]

Can you clarify your question?

Is the $102,048 actually showing up on the tax return?  Or is that just on a Summary screen?

Are you saying you only received about $10,000 this year ($120,000 sale price minus a $110,000 note for payment in future years)?

Is this real estate?  Or is it some other type of property?  Was the property depreciated (such as renting it out for for a business)?

What did you enter for your Basis (similar to Cost)?

[PugNickel]

This sale was a rental property owned for 38 years. Fully depreciated. The $102.048 is what TT is calling my Installment Sale Income. The gross profit percentage is calculated to be 1.000. I am sure this is an input error.

[TaxGuyBill]

Is that what is actually showing on the tax forms?

If so, go back through that section and see if you answered anything incorrectly (or delete that section and enter it again).

[Anonymous · Accepted solution]

line 6  should be 0, that $110,000 is not a mortgage they assumed but part of selling price which means you should have gotten $10,000 as a down payment

line 7 should be 120000

line 12 if the 4767 is done correctly should be 47650

line 13 should be 56847

line 14 and 16 should be 63153

line 18 should be 120000

line 19 should be .526275

line 21 and 22 should be 120000 sales price less the amount of the installment sale of 110000 + any other payments received

what about land cost or did you have no land or did you depreciate it?.  

[Anonymous]

anyway line 6 should be 0

line 12 should be $47650 

and if you sold it for $120,000 taking back a $110,000 note and collected $1,000 in principal on the note in 2018 line 19 should be $11,000  

don't be surprised if $47650 appears on schedule 1 line 14.   in an installment sale, all depreciation (to the extent of the gain) must be recaptured in the year of sale regardless how much is collected 

if you properly enter the installment sale part III of form 4797 should be populated 

[TaxGuyBill]

@TaxPro+40   No, the depreciation will NOT be immediately taxable.  That is only true for §1245 property.  That does not apply to §1250 property (real estate).

[Anonymous]

the capital gain recapture - section 1250 - is figured using the section 1250 worksheet in the instructions for schedule D. 

[TaxGuyBill]

"Recapture" for §1250 property is depreciation in excess of Straight Line.  Although some new laws allow that to happen in certain circumstances, for the most part §1250 property does NOT have "recapture".

The gain due to straight-line depreciation is "Unrecaptured Section 1250 Gain".

In connection with Installment Sales, Publication 537 has an example, which includes the statement:
"There’s no depreciation recapture income because the building was depreciated using the straight line method."
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p537#en_US_2017_publink1000221698">https://www.irs.gov/publications...>

So as I said before, an Installment Sale does NOT immediately tax the depreciation for §1250 Property.  There is no "recapture" (except for rare circumstances, or property that uses some of the newer laws that allow Section 179 or Bonus Depreciation on §1250 property).

[Anonymous]

nope.  TT did it right.    on an installment sale, all gain attributable to depreciation taken, is taxable in the year of sale regardless of the amount collected.     

[TaxGuyBill]

No it is not, not for Real Estate (Section 1250 property).

[PugNickel]

Line 5 120,000
Line 6  110,000
Line 7    10,000
Line 8    47,650
Line 9    47,650
Line 10           0
Line 11    9,197
Line 12           0
Line 13    9,137
Line 14  110,803
Line 19     1.000
Line 20  110,803
Line 21      1,245
Line 22  102,048

[TaxGuyBill]

Is $110,000 the amount of your loan to the new owner?

If so, that should NOT be on Line 6.

[Anonymous]

taxguybill you nailed it. i thought in op's post he was say he took depreciation 0f $102,000 plus

[Anonymous]

it also appear op depreciated the land - lines 8 & 9 are the same