Form 6252
The IRS Form 6252 must be filled out by anyone who sells property on the installment method. It includes special fields for related parties who may receive interest income from the sale of the property.
When you sell real or personal property in an installment sale, you may need to file Form 6252 IRS. This form helps you report canceled debt or gain on the disposition of the property. It’s typically filed in the year of the sale and every subsequent year when you receive an installment payment. For individuals, completing Form 6252 is essential in reducing any tax liability from the sale of personal property. This is because it allows the taxpayer to defer the taxes on a sale until they receive income from the property.
An installment sale is a transaction where the seller agrees to receive payment for the property over an extended period rather than the full payment upfront. This payment method is commonly used in the sale of real estate, businesses, and other substantial assets. The buyer pays the seller in multiple installments, and the seller typically earns interest on the outstanding balance.
Individuals, corporations, and partnerships that have sold property on an installment basis must file IRS Form 6252. This form is applicable to both sellers who report the sale as a capital gain and those who report it as an ordinary gain, depending on the nature of the property sold.
How to Complete Form 6252?
To complete this form, the taxpayer must input their name and identification number–an employer identification number for corporations or a Social Security Number for individuals–into Line 1. Next, they will list income, depreciation, cost basis, and liabilities to arrive at the sale’s gross profit and contract price. The taxpayer will then report the total of payments received during the year in Part II.
For each payment, the taxpayer will need to list the amount, date of the transaction, and description of the property sold. The taxpayer will also need to include any expenses incurred with the sale, such as advertisement fees and the services of a lawyer. The taxpayer will then calculate the gain by comparing the contract price to the gross profit percentage from Line 19 of the tax year that the first installment sale was made.
The taxpayer will then need to fill out special fields in Part III, including Line 27, which asks for the name, address, and taxpayer identifying number of the related party. In addition, they will need to check a box in Line 28 if the related party resold or disposed of any property during this year.
