Installment sale of rental property

#3 07-05-2004, 01:52 PM

Harlan Lunsford wrote:
- quote -

> Bob Oaks wrote:

> > We are going to sell some rental property and will have both
> > capital gains and recaptured depreciation. We are
> > considering offering to carry the mortgage, with a down
> > payment of say 25%. Does that mean that 25% of the gain and
> > recapture would be due the first year and the rest of each
> > due as the money comes in each year? Or is the gain vs.
> > recapture allocated some other way, such as all the
> > recapture paid all at once upon sale and the gain then taxed
> > each subsequent year? We would have offsetting losses to
> > reduce the gain each year, but I don't think the
> > depreciation recapture can be offset.

> As I used to tell my students, the secret of success in
> accounting is "allocate-allocate-allocate". And you've
> come up with that correct answer in your first attempt.
> IOW, if 60% of each payment relates to capital gain, then
> that's how much gets treated that way of every payment on a
> year's tax return. The other 40% of course must related to
> recapture and gets treated accordingly.

HOWEVER: that MIGHT have changed. I'm sure someone will
chime in if it has.

Cheer$,
Harlan Lunsford, EA n LA

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#2 07-02-2004, 05:35 PM

"Bob Oaks" <bobinsfoNOSPAM[at]yahoo.com> wrote:

- quote -

> We are going to sell some rental property and will have both
> capital gains and recaptured depreciation. We are
> considering offering to carry the mortgage, with a down
> payment of say 25%. Does that mean that 25% of the gain and
> recapture would be due the first year and the rest of each
> due as the money comes in each year? Or is the gain vs.
> recapture allocated some other way, such as all the
> recapture paid all at once upon sale and the gain then taxed
> each subsequent year? We would have offsetting losses to
> reduce the gain each year, but I don't think the
> depreciation recapture can be offset.

You need to create a loan amortization. The gain that is
taxed is based on the amount of loan principal received in
any year. Recapture must be recognized before long term
gain, though I am fairly certain it can be offset by losses.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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#1 07-02-2004, 05:35 PM

Bob Oaks wrote:

- quote -

> We are going to sell some rental property and will have both
> capital gains and recaptured depreciation. We are
> considering offering to carry the mortgage, with a down
> payment of say 25%. Does that mean that 25% of the gain and
> recapture would be due the first year and the rest of each
> due as the money comes in each year? Or is the gain vs.
> recapture allocated some other way, such as all the
> recapture paid all at once upon sale and the gain then taxed
> each subsequent year? We would have offsetting losses to
> reduce the gain each year, but I don't think the
> depreciation recapture can be offset.

As I used to tell my students, the secret of success in
accounting is "allocate-allocate-allocate". And you've
come up with that correct answer in your first attempt.
IOW, if 60% of each payment relates to capital gain, then
that's how much gets treated that way of every payment on a
year's tax return. The other 40% of course must related to
recapture and gets treated accordingly.

I'm talking about 60/40 of the principal amounts collected
of course. Interest goes elsewhere.

Cheer$,
Harlan Lunsford, EA n LA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

07-02-2004, 04:56 PM

"Bob Oaks" <bobinsfoNOSPAM[at]yahoo.com> wrote:

- quote -

> We are going to sell some rental property and will have both
> capital gains and recaptured depreciation. We are
> considering offering to carry the mortgage, with a down
> payment of say 25%. Does that mean that 25% of the gain and
> recapture would be due the first year and the rest of each
> due as the money comes in each year? Or is the gain vs.
> recapture allocated some other way, such as all the
> recapture paid all at once upon sale and the gain then taxed
> each subsequent year? We would have offsetting losses to
> reduce the gain each year, but I don't think the
> depreciation recapture can be offset.

Time to see a tax professional.

Missy Doyle

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#-1 06-30-2004, 10:29 PM

We are going to sell some rental property and will have both
capital gains and recaptured depreciation. We are
considering offering to carry the mortgage, with a down
payment of say 25%. Does that mean that 25% of the gain and
recapture would be due the first year and the rest of each
due as the money comes in each year? Or is the gain vs.
recapture allocated some other way, such as all the
recapture paid all at once upon sale and the gain then taxed
each subsequent year? We would have offsetting losses to
reduce the gain each year, but I don't think the
depreciation recapture can be offset.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

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