Tax professionals need expertise in complex installment sales due to intricate tax rules. Understanding is crucial to calculate tax liabilities accurately, determine capital gains and comply with IRS regulations. This knowledge will prepare you to handle various scenarios, such as repossessions, reporting taxable transactions and mid-sale price adjustments, avoiding costly errors.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.
Q: Can you amend to opt into an installment sale?
A: No, by filing the tax return and reporting the full gain, you opted out of installment reporting. You would need IRS consent to revoke the election.
Q: What happens if the seller does not charge interest income?
A: In that case, the imputed interest rules apply.
Q: How is the gain on a repossession reported?
A: You report gain or loss from a repossession on the same form you used to report the original sale. If you reported the sale on Form 4797, Sales of Business Property, use it to report the gain or loss on the repossession.
Q: Is the gross profit percentage applied to principal paid each year?
A: Yes, that’s right. The gross profit percentage is applied only to the principal payment made. The interest portion of the payment is reported on Schedule B as interest income.
To learn more about tackling complex installment sales, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial at natptax.com/explore.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.