Land contract question

[JJStephens]

I need someone with more experience/knowledge than me to double check my understanding of a land contract cancellation and resale issue.

Client purchased a home in 1992 for $73,500.

Client sold the home via land contract in Aug 2010 for $140,000 (reported installment sale interest in 2010, 2011 and 2012).

Buyer and client agreed to cancel the land contract in Aug 2012. When client reacquired the home the balance owing was $130,987.

Client sold the home later in Oct 2012 for $110,000.

As I understand Treasury Reg Sec. 1.1038-2, the cancellation is essentially ignored and the resale is treated as though it were the original sale. The gain recognized on the original sale is added to the gain realized on the resale. Since that amount is less than the $250,000 exclusion amount she has no tax consequence and nothing needs to be reported.

Am I missing something or does this sound right? Thanks for any help you can offer.

[kcjenkins]

Basically yes, but I've always found it best to file a 'final' installment sale form to close out the books on the sale. Never had it questioned when done that way, but I knew a friend who, in the sort of situation you describe, just left it off, and then got a CP 2000 later, and had several letters required to clear up the issue of why there was no reporting of the sale that year. I hate those CP 2000 letters.

[JJStephens]

Thanks KC. Good advice.

[grandmabee]

why was there a 6252 installment sale form when it was a personal residence?