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Old 02-23-2015, 12:56 PM
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Installment Sale Income

I received installment sale income over the last few years as a result of a stock sale when the company I worked for was sold. The company was employee owned. I have been reporting the installment sale on Form 6252. Original selling price was $533,177 and our cost basis was $115,965, giving us a gross profit % of .7825. We received a total of $511,496 prior to 2014 and therefore reported $400,246 of gross profit in those years.

We received our final payment this past year but before receiving it, the company was sold a second time. Instead of receiving the remaining $21,681.00 from the original sale, we received $3,625. We were told the figures were adjusted as a result of the second sale of the company. When I went back and refigured my original selling price to be $515,121, my gross profit percentage would be 77.487%. I would therefore have to report a total gross profit of $399,152 over the period of the installment sale. I've already reported $400,246 in prior years. Do I therefore have a $1,094 loss to report on my 2014 tax return? How do I handle this on my return?

Thank you very much for your help.



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Old 02-23-2015, 07:59 PM
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We received our final payment this past year but before receiving it, the company was sold a second time. Instead of receiving the remaining $21,681.00 from the original sale, we received $3,625. We were told the figures were adjusted as a result of the second sale of the company. When I went back and refigured my original selling price to be $515,121, my gross profit percentage would be 77.487%. I would therefore have to report a total gross profit of $399,152 over the period of the installment sale. I've already reported $400,246 in prior years. Do I therefore have a $1,094 loss to report on my 2014 tax return?====>>>>>>>No. if a sale is made at a loss, the installment method cannot be used.if the selling price is reduced at a later date, the gross profit on the sale also will change. You then must refigure the gross profit percentage for the remaining payments. You need to refigure your gross profit. You will spread any remaining gain over future installments.

How do I handle this on my return?=========>>>>>>>>>>>>. As mentioned above;you need to apply the reduced gross profit percentage to all future payments to determine how much of each of those payments is installment sale income. For example, say in 2012, you sold land with a basis of $40k for $100k. Your gross profit was $60k. You received a $20k down payment and the buyer's note for $80k. The note provides for four annual payments of $20k each, plus 8% interest, beginning in 2013. Your gross profit percentage is 60%, 60k/100K, You reported a gain of $12k on each payment received in 2012 and 2013.

In 2014, for some reason, you and the buyer agreed to reduce the purchase price to $85k and payments during 2014, 2015, and 2016 are reduced to $15k for each year. The new gross profit percentage, 46.67%, is figured. You will have to report a gain of $7k ,46.67% of $15k, on each of the $15k installments due in 2014, 2015, and 2016



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