Tax Research – Disposition of Property
The repossession is treated as a sale or exchange from (Foreclosures) and reported the original sale (Publication 225). The gain or loss is the difference between adjusted basis in the transferred property and the amount realized. (Publication 537), The investment land, is sold again this year will be counted as a short-term gain.
For now the gain is:
644,000-562,250=81,750$
As for the Mrs. Nittany rent property, it has been owned for more than 2 years (Gains, Reporting). It is a business property.
The gain is as follows:
Realty
338,200-41,920=296,280 $
385,000-28,750-4,293-296,280=55,677 $
Furnishing
21,400-15,000=6,400 $
15,000-6,400=8,600 $
It is again an instalment sale of a long-term capital gain on sale, as the first principle payment will be received only in 2017.
A tax-free return of principle in the property
55,677+8,600400,000=0,16
For this year:
0,16*80,000=12,800 $
The rest gain is installment sale income on Form 6252.
80,000-12,800=68,200 $
As for the farm, in future if sold to the investor it will be considered among long-term gains and selling a main house, because owned for more than 1 year and lived in. If taken cash they would need declare the entire proceeds in the current year or the year of sale, the additional income from the sale.
1,400,00-618,000+176,000=606,000 $
606,000-500,000=106,000 $
As they married and filing jointly, the exclusion limit is $500,000. (Publication 523) So this deal won’t be tax-free for the Nittanys. The excess is taxed as a long-term capital at a maximum rate of 15 percent, plus applicable state taxes.
If filed as an installment sale agreement, the gain from an installment sale is reported on IRS Form 6252 and then carried to the Schedule D on Form 1040.
Here they can claim a following tax free return of 43,28%:
606,0001,400,000=0,4328
What in the end won’t be favourable.
Works cited
Foreclosures and Repossessions. Web IRS. Web. 05 Feb. 2016. <https://www.irs.gov/publications/p4681/ch02.html>
Gains and Losses. Web IRS. Web. 05 Feb. 2016. <https://www.irs.gov/publications/p225/ch08.html#en_US_2015_publink1000218432>
Publication 523 – Main content. Web IRS. Web. 05 Feb. 2016. <https://www.irs.gov/publications/p523/ar02.html#en_US_2015_publink100010381>
Publication 537 – Main content. Web IRS. Web. 05 Feb. 2016.. <https://www.irs.gov/publications/p537/ar02.html#en_US_2014_publink1000221736>
Reporting Gains and Losses. Web IRS. Web. 05 Feb. 2016. <https://www.irs.gov/publications/p544/ch04.html>
