Form 1040 Reporting of Owner Financing & Nontraditional …
Form 1040 Reporting of Owner Financing & Nontraditional Loans
(Installment Sales 101)
American Institute of Certified Public Accountants
Today's Agenda
? Key concepts ? Practical applications ? Special situations ? Related tax forms ? Wrap-up and questions
Please ask questions as we go!
2
Installment Sale Defined
? Sale of property ? Multiple payments ? Over more than one tax year
* Taxpayer plays role of the banker
3
Payment Components
? Return of investment
? Basis
? Gain on sale
? Treatment varies
? Interest
? Stated ? Imputed under ?483 ? Original issue discount under ?? 1271-1274
4
Terms You Need To Know & Understand
? Sales price ? Selling expenses ? Adjusted basis ? Installment sale basis
5
Terms You Need To Know & Understand
? Contract price ? Gross profit ? Gross profit percentage ? Depreciation recapture
6
When to Use
? Sale of business
? Buyer lacks financing
? Selling to trusted employee
? Gradual phase-in
? Tax planning
? Spreading income over time 7
Required Information
? Sales agreement
? Sales price & fees ? Interest rate & terms
? Basis of property sold
? Including depreciation taken
? Amortization schedule
? Actual payments ? Interest allocation
8
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