installment sale now a loss with reduced price

[schirallicpa]

I suspect "amend" is somewhere in the answer, but I'm hoping not:)

Client sold bus. property in 2006 for $50,000 with $21351 gain. Took payments. Reported portion of gain and related interest in 2006 and 2007. Total gain reported is $4502 on 6252.

Now - client just wants to get rid of thing when buyer was about to default. Told him to pay 15000 and be done with it - take it or leave it. Rec'd 5000 of that in 2008. (Still waiting on remaining 10K and unsure about that!)

So - I'm thinking my reduced price is the 15000 plus the 4502 already received. But this puts me at a loss on the property. Do I need to go back and amend 2006 and 2007, or does this get reported in 2008 as a loss now. And the stinger is - they may be defaulting in 2009 after all.

Any direction or thoughts would be appreciated!

Thanks.

[RoyDaleOne]

Part of your answer is here.

http://www.irs.gov/publications/p537/ar02....publink10001172

Unless there was actual modification in writing of the original agreement I am not sure you can adjust the sale price.

[RoyDaleOne]

Seller must calculate the gain or loss realized on the repossession and the new basis in the repossessed property.

Any loss resulting from an adjustment in the selling price shall be considered as resulting from the sale or exchange of the property in respect of which the installment obligation was received. That is the taxpayer is entitled to a deduction of the same character that results from the loss arising from the reduction in the selling price .

[schirallicpa]

Yes - I have access to the publication. However, I'm not really finding an answer to my question in the publication, hence my posting here.

Additionally, regardless of whether or not there is a "written modification" - which I honestly don't know if there is or not - I believe the IRS would prefer substance over form in most transactions.

Furthermore, he is not repo-ing.

[grandmabee]

Yes - I have access to the publication. However, I'm not really finding an answer to my question in the publication, hence my posting here.

Additionally, regardless of whether or not there is a "written modification" - which I honestly don't know if there is or not - I believe the IRS would prefer substance over form in most transactions.

Furthermore, he is not repo-ing.

he is discounting the note. recaluate

[LindaB]

Total gain reported is $4502 on 6252.

So - I'm thinking my reduced price is the 15000 plus the 4502 already received. But this puts me at a loss on the property.

This doesn't really answer your question, but is a comment. If he has reported gain of $4502 over several years, he actually would have received more because part of each principal payment is gain and part is return of capital. In other words, the 'new' price is $15,000 plus $4502 plus return of capital over the several years.

[LindaB]

In pub. 537, page 3 there is an example of reducing the selling price. On the same page there is worksheet B to use to recalculate the gross profit percentage. It doesn't say to amend, but to recalculate for going foreward. I didn't look further to see if this would also be true if there is now a loss.

[RoyDaleOne]

Everyone please ignore my following rant, I apology in advance for my poor taste and lack of consideration.

1. The Pub clearly states that you do not amend the return, any adjustments to the installment sale are made in the year in which they occur.

2. There is insufficient facts to verify your computation, anyway, I would not verify the computations.

3. Without a written modification the original agreement stands, therefore, there is no basis for changing the way the sale is reported, that is until there is a written modification or, until the seller satisfies the note. That is the seller takes a reduced amount in full payment of the note.

[schirallicpa]

'tis the season to be punchy......

I'd like my punch with a little nip in it right now. This coffee probably isn't helping.