6252 - need walk thru pls brain freeze?

[WITAXLADY]

so sells business (unrelated party) for $40,000, basis all depreciated of $30,000 - ordinary income of $30,000 capital gain of $10,000

On Installment - so first year - of $10,000 payment - capital gain is 25% of $2500 and for every $10,000 payment. 25%

1 - does the $30,000 ordinary get claimed in first year?  

2 - or prorated as paid as well? 

3 - did it thru the Fixed Asset and 4797 to 6252 and it was a royal mess!! 

So above I need to figure out 2014 

and now for 2015 - I need to do this correct

first the 6252 when I put the 25% in - it flows from the 6252 to the 4797 and from line 25 of the 6252 - shows the $2500 and says subtract out the cap gain to D but it will not subtract any out and puts the $2500 as ordinary income on the 4797! - even I know that is not correct.  - Nothing is done with the $7500 so it would seem to me I would have to claim that the first year but then it also asks me to subtract out the gain on the 6252,

Second payment - from a long time ago - he was paid $5,000 - probably was just ordinary income - depreciated -  for purchase of another business from son - where does this go? 4797? ordinary income? 

thank you - losing it I think  *****!

[jklcpa]

Your answer to #1 is "YES".  

Maybe this will help, from pub 537.

Depreciation Recapture Income

If you sell property for which you claimed or could have claimed a depreciation deduction, you must report any depreciation recapture income in the year of sale, whether or not an installment payment was received that year. Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. Report the recapture income in Part II of Form 4797 as ordinary income in the year of sale. The recapture income is also included in Part I of Form 6252. However, the gain equal to the recapture income is reported in full in the year of the sale. Only the gain greater than the recapture income is reported on the installment method. For more information on depreciation recapture, see chapter 3 in Publication 544.

The recapture income reported in the year of sale is included in your installment sale basis in determining your gross profit on the installment sale. Determining gross profit is discussed under General Rules , earlier.

[jklcpa]

Also see the instructions for line 25 of Form 6252 that should help you.

In a nutshell, you are reporting the entire recapture in the year of sale but the taxpayer hasn't received enough installment payments to cover that amount of gain.  The first year of the sale, that $30K will be reported in full as ordinary income on the 4797. The $30K of cost and depreciation will be on the first year's 6252 on lines 8 & 9, and the recapture on line 12 and 13.  Lines 16 & 18 will be 10K and 40K, respectively to allow the form to calc the 25% GP%.

From there, the 10K payment received will be shown, work through the calcs on the form 6252 in part 2 through line 24. Line 25 will show $2500 because that is the total amount of gain realized on installment, but the taxpayer has recognized the more than that due to the recapture income. 

Each year's form 6252 will report an amount equal to the line 24 (the gain for the current year) until the total of all years' on that line equals the $30K of recapture income, and only then will a portion of the collections be taxed as a capital gain.

[WITAXLADY]

THANK  YOU! Last night I could not even think what pub to go to... when I saw the 2014 so messed up and it still is not correct based on what you have  - so much for Fixed Asset sale - a direct sale is usually correct - I check that. This I missed. 

[Margaret CPA in OH]

I could think of lots of pubs to go to about now