Today TaxMama hears from Carol in New York who tells us. “ I inherited lakefront property in 1999. I recently sold it for $60,000.00 and I am holding the mortgage with payments being made of $600.00/month. Do I have to report the sale; and how will taxes be calculated?”
Dear Carol,
OK, we’re sitting here chuckling at the question.
Do you have to report the sale? Of course. You always have to report the sale of anything at all. Whether there’s a profit or not, you have to report your sales. You will probably use Schedule D
https://www.irs.gov/pub/irs-pdf/f1040sd.pdf
or, for your installment sale, use Form 6252 https://www.irs.gov/pub/irs-pdf/f6252.pdf .
Not only do you have to report the sale that took place in 2009, you will also to report the interest and principal you receive each year.
The good thing about the installment sale you arranged, is that if there is any profit, you can spread the taxes on the profits over the life of the loan – using the bottom of Form 6252.
Of course, it’s quite possible that you don’t have a lot of profit, if any. Did someone take the time to document the value of the property at the date the person who willed it to you died? If not, get a competent appraiser to provide an appraisal report at the date of death. That will be the cost you show for the sale.
You may want to have a tax professional help you – at least for the year of the sale. It will save you time and money if you get it right in the first place – and reduce your chance of audit. You can find an Enrolled Agent in your area at www.naea.org . Or EAs and other tax professionals at www.natptax.com .
And remember, you can find answers to all kinds of questions about selling property and other tax issues, free. Where? Where else? At TaxMama.com.
[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]- Ask TaxMama :: Where taxes are fun and answers are free
- www.TaxQuips.com :: The number ONE free tax podcast online
- IRS Schedule D :: Where you report Capital Gains and Losses
- IRS Form 6252 :: To report Installment sales
- NAEA :: The National Association of Enrolled Agents
- NATP :: The National Association for Tax Professionals
- IRS Publication 537 :: Installment Sales
