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Level 4
April 12, 2022
Question

Installment Sale and Schedule C

  • April 12, 2022
  • 8 replies
  • 59 views

I have a client that makes a living building and remodeling houses.  He started building a house on land he already owned and one of the subcontractors wanted to purchase it.  The sub contractor did not charge for his labor to lower the contract selling price.  My client then did an installment sale to his sub contractor.  When I prepare the 6252 installment sale and link it to Schedule C (I know the profit should be subject to social security tax) it doesn't flow through to Schedule C.   I did set up an asset entry worksheet in Schedule C and reported the sale and linked it to 6252. No matter what I do it will not flow to Schedule C.   Anyone else had this problem?  Should I not prepare the installment sale and enter income and expenses on Schedule C and then just report the interest income each year?    Of course if I do that all the profit is taxable in the current year.   He is not against paying tax on the total gain this year but it would be better is we could spread it out the number of years on the amortization schedule.  I really want to report it correctly. I certainly don't want it to come back and haunt me.  

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8 replies

Level 10
April 12, 2022

Disclaimer. I have not had this situation so my questions are to provoke thought.

 

Is a Spec House Inventory?

Is there an exception for this situation, that avoids the IRS rule saying you can't use the installment method for Inventory?

Would reporting all of the sale in the current year push him over the SS limit for self employment tax purposes, and would that savings make up for the difference of reporting all of the sale in the current year even if you can find positive answers for the first 2 questions?

Hope these give you something to research and consider.

sjrcpa
Level 15
April 12, 2022

There are some special rules under 453 that may or may not allow a builder to report on the installment method.

Report the income and interest on the Schedule C. Bypass the 6252 if it won't go to Schedule C.

EDIT: If you determine that the installment method is allowed, do the calculation manually to determine how much income is reportable this year and include that amount on Schedule C.

I have a business that subdivides old farms and sells undeveloped lots. That qualifies for installment sale reporting and this is how I do it.

 

The more I know the more I don’t know.