Discussion Archives:Capital loss installment note

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Discussion Forum Index --> Advanced Tax Questions --> Capital loss installment note


Discussion Forum Index --> Tax Questions --> Capital loss installment note

Monroe2008 (talk|edits) said:

26 August 2010
We have a client that sold farmland for $12,000 and the purchase price (basis) was $12,600. The holding period of the property was only 1 day.

The amount realized consisted of $6,000 cash down and 3 year $6,000 note with an interest rate of 8% due in quarterly installments.

What is the amount of the capital loss/gain, when is it recognized and how is it reported?

Nightsnorkeler (talk|edits) said:

26 August 2010
Is this in the correct area? Advanced tax questions, really??

Kevinh5 (talk|edits) said:

26 August 2010
I think it belongs in the 'homework' category, but looking at Monroe's prior posts, I do believe he is in the tax business. His profile does state that he is a CPA, so I think it is a legitimate question.

Kevinh5 (talk|edits) said:

26 August 2010
My answer: a sale to a related party doesn't allow loss recognition.

Why else would someone buy something for full cash one day, then sell for less (and less money down) the next day?

CrowCPA (talk|edits) said:

26 August 2010
Monroe should be able to figure the gain or loss. There are apt to be costs involved that are not disclosed here. Guessing from the title he supplied, perhaps he is unsure how to handle an installment sale with a loss. My understanding is that only gains are reported using the installment method. Losses are reported in their entirety in the year of the sale.

Kevin, one reason for such a sale could be that this was part of a larger purchase and the taxpayer has retained other assets purchased in the same deal. If that is the case, Monroe should be very cautious about allocating the cost basis.

Kevinh5 (talk|edits) said:

26 August 2010
a plausable scenario
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