Installment Gain

[Catbrother]

I have a client who sold her commercial property subject to an installment agreement. California has Form 593 Real Estate Withholding Tax Statement which requires her to remit a payment coupon and a paper check to Franchise Tax Board every month for the next ten years of the installment agreement with a copy to the seller. These requirements are onerous for my 77 year old client. She can opt out and have 3 1/3% of the sales price withheld at close of escrow and forgo the monthly payments.  In this case can I report the full gain to California on the 2020 return but still report it as an installment gain for IRS?

Can't find anything written.

Denise Robertson

[George4Tacks]

I would consider skipping part III and IV and just jump to VI to compute the full gain. Every year in the future compute the CA gain and give the client ONE 540ES to submit on April 15.

Go ahead and report the installment sale method for both Fed and CA when you do the return. Dependent upon the client income, it is possible it may cost them a bit more, but it is likely worth it to avoid the hassle. 

Keep it simple for us old folks (I just turned 76.)

[Catbrother]

George,

You have always replied to my questions and I thank you. I have a client who has been flakey in filing timely returns going back a few years now. She is a realtor and is pending a levy of tax on the 2016 return I filed 3 years late. She had an investment property that she purchased to renovate in 2016. It had been condemned. Her costs exceeded what she sold it for and in 2018 it developed a large capital loss and an NOL of $246,704. I can carry it back 2013 and go forward I know. She had no taxable income in 13, 14, and 15. Just SE tax. In 2016, IRS adjusted the return I filed disallowing most of her Sch C deductions and sent her a bill and the time to dispute it. She let the time expire and did not notify me timely. I told her we would use the NOL carryback to eliminate the income tax and recoup the Excess PTC she had to repay because her MAGI was too high on the return IRS calculated after denying her deductions. Lacerte software for form 1045 has you enter SE tax on the original I assume. I understand that SE tax cannot be reduced from an NOL carryback. But it wipes it out when I hit calculate. Should I use 1045 in this case or 1040X. I called my CPA friend who told me she never does any carrybacks. Weird. Any help would be appreciated.

[sjrcpa]

You have to use 1040X.

1045 can only be used within 12 months after the year end of the NOLY year. i.e 2018 NOL, 1045 had to be filed by 12/31/19. There was some extension when they passed the 5 year carryback period but that is no longer available.

SE tax cannot be eliminated by an NOL carryback. Either you input something wrong or the amendment generated some credits that wipe out the total tax liability.

[Catbrother]

Thank you.

Denikse