Problem 8-19 Calculation of Gain or Loss, Installment Sales (LO 8.8, 8.10)

Steve Drake sells a rental house on January 1, 2022, and receives $100,000 cash and a note for $50,000 at 7-percent interest. The purchaser also assumes the mortgage on the property of $30,000. Steve's original cost for the house was $175,000 on January 1, 2014, and accumulated depreciation was $30,000 on the date of sale. He collects only the $100,000 down payment in the year of sale.

Taxable gain is $35,000.

Assuming Steve uses the installment sale method, complete Form 6252 for the year of the sale.

If an amount is zero, enter "0". Enter all amounts as positive numbers. Round all decimals to four places and any dollar amount to the nearest dollar.

Form 6252 Department of the Treasury Internal Revenue ServiceInstallment Sale Income Attach to your tax return. Use a separate form for each sale or other disposition of property on the installment method. Go to www.irs.gov/Form6252 for the latest information.OMB No. 1545-0228

2022

Attachment Sequence No. 67

Name(s) shown on return Steve DrakeIdentifying number1Description of property Rental PropertyMortgage payableNote receivableRental Property2aDate acquired (mm/dd/yyyy) 01/01/2014bDate sold (mm/dd/yyyy) 01/01/20223Was the property sold to a related party? See instructions. If Yes, complete Part III for the year of sale and 2 years after the year of the sale unless you received the final payment during the tax year. If No, skip line 4 . . . Yes No4Did you sell the property to an intermediary? If Yes, provide the name and address of the intermediary on line 27 . . . . . . . . . . Yes NoPart IGross Profit and Contract Price. Complete this part for all years of the installment agreement.5Selling price including mortgages and other debts. Don't include interest, whether stated or unstated5fill in the blank 79bbc901407f049_26Mortgages, debts, and other liabilities the buyer assumed or took the property subject to (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . .6fill in the blank 79bbc901407f049_37Subtract line 6 from line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7fill in the blank 79bbc901407f049_48Cost or other basis of property sold . . . . . . . . . . . . . . . . . . . . . . . . . . .8fill in the blank 79bbc901407f049_59Depreciation allowed or allowable . . . . . . . . . . . . . . . . . . . . . . . . . . . .9fill in the blank 79bbc901407f049_610Adjusted basis. Subtract line 9 from line 8 . . . . . . . . . . . . . . . . . . . . . .10fill in the blank 79bbc901407f049_711Commissions and other expenses of sale . . . . . . . . . . . . . . . . . . . . . .11fill in the blank 79bbc901407f049_812Income recapture from Form 4797, Part III (see instructions) . . . . . . . .12fill in the blank 79bbc901407f049_913Add lines 10, 11, and 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13fill in the blank 79bbc901407f049_1014Subtract line 13 from line 5. If zero or less, don't complete the rest of this form. See instructions.14fill in the blank 79bbc901407f049_1115If the property described on line 1 above was your main home, enter the amount of your excluded gain. See instructions. Otherwise, enter -0-. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15fill in the blank 79bbc901407f049_1216Gross profit. Subtract line 15 from line 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16fill in the blank 79bbc901407f049_1317Subtract line 13 from line 6. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17fill in the blank 79bbc901407f049_1418Contract price. Add line 7 and line 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18fill in the blank 79bbc901407f049_15Part IIInstallment Sale Income. Complete this part for all years of the installment agreement.19Gross profit percentage (expressed as a decimal amount). Divide line 16 by line 18. (For years after the year of sale, see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19fill in the blank 79bbc901407f049_1620If this is the year of sale, enter the amount from line 17. Otherwise, enter -0- . . . . . . . . . . . . . . . .20fill in the blank 79bbc901407f049_1721Payments received during year (see instructions). Don't include interest, whether stated or unstated . .21fill in the blank 79bbc901407f049_1822Add lines 20 and 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22fill in the blank 79bbc901407f049_1923Payments received in prior years (see instructions). Don't include interest, whether stated or unstated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23fill in the blank 79bbc901407f049_2024Installment sale income. Multiply line 22 by line 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24fill in the blank 79bbc901407f049_2125Enter the part of line 24 that is ordinary income under the recapture rules. See instructions . . . . .25fill in the blank 79bbc901407f049_2226Subtract line 25 from line 24. Enter here and on Schedule D or Form 4797. See instructions . . . . .26fill in the blank 79bbc901407f049_23Part IIIRelated Party Installment Sale Income. Don't complete if you received the final payment this tax year.27Name, address, and taxpayer identifying number of related party 28Did the related party resell or dispose of the property ("second disposition") during this tax year? . . . . . . . . . . . . . . . . . Yes No29If the answer to question 28 is "Yes," complete lines 30 through 37 below unless one of the following conditions is met. Check the box that applies.aThe second disposition was more than 2 years after the first disposition (other than dispositions of marketable securities). If this box is checked, enter the date of disposition (mm/dd/yyyy) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___________bThe first disposition was a sale or exchange of stock to the issuing corporation.cThe second disposition was an involuntary conversion and the threat of conversion occurred after the first disposition.dThe second disposition occurred after the death of the original seller or buyer.eIt can be established to the satisfaction of the IRS that tax avoidance wasn't a principal purpose for either of the dispositions. If this box is checked, attach an explanation. See instructions.30Selling price of property sold by related party (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . .3031Enter contract price from line 18 for year of first sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3132Enter the smaller of line 30 or line 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3233Total payments received by the end of your 2022 tax year (see instructions) . . . . . . . . . . . . . . . . . . .3334Subtract line 33 from line 32. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3435Multiply line 34 by the gross profit percentage on line 19 for year of first sale . . . . . . . . . . . . . . . . . . .3536Enter the part of line 35 that is ordinary income under the recapture rules. See instructions . . . . . . .3637Subtract line 36 from line 35. Enter here and on Schedule D or Form 4797. See instructions . . . . . . . .37For Paperwork Reduction Act Notice, see page 4.Cat. No. 13601RForm 6252 (2022)