Form 6252 Installment sale

[s-cain]

I am trying to complete a Form 6252 installment sale on some farm land that was distributed from a trust. I do not have and asset entry worksheet for the property since it was distributed and sold in 2021, so it is not tied to a Schedule E or Schedule F or a K-1 from a Sub S corp or partnership. How do I create an asset entry worksheet for an asset of this type that is not going to be depreciated? or do I need to?

[Just-Lisa-Now-]

You dont need an asset entry worksheet for this, just fill out the sale info on the 6252.

[s-cain]

I've tried that but the payment information worksheet lines 20 and 21 don't appear on the form 6252 Line 21. The client did not receive a payment of principal or interest in 2021 but I can't enter a zero on line 21 of Form 6252. Is that correct the software assumes that since the sale occurred in 2021 that there was no payment of principal or interest?

[TaxGuyBill]

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@s-cain wrote:

The client did not receive a payment of principal or interest in 2021 but I can't enter a zero on line 21 of Form 6252.

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No payments equals no Form 6252.

It is technically not needed and is wrong, but if you are uncomfortable with the sale happening in 2021 and not mentioning it at all on the tax return, I suspect that your client would be okay if you reported that they received $1.

As a side note, I find it rather unusual that the sale happened and there were absolutely no payments at all (not even a down payment).  So you may want to double-confirm that with the client.

[s-cain]

The problem is the client received a 1099-S so I believe it needs to be reported. I have double checked with the client and the law firm that reported the sale on the 1099 S and they confirmed no payments were received in 2021.

[sjrcpa]

Have you looked at the Settlement Sheet?

[s-cain]

I've asked for a settlement sheet but the client does not have one. That is why I called the law firm that prepared the 1099-S and confirmed with them there was no payment made in 2021. The sale occurred on October 31, 2021 and is interest only until final payment in year 10.

[sjrcpa]

The law firm would have the Settlement Sheet, too.

I have been taught there is no legal contract without consideration. I don't think I've seen a real estate sale without at least a nominal down payment.

[dd4vols]

The law firm would have the Settlement Sheet, too.

I have been taught there is no legal contract without consideration. I don't think I've seen a real estate sale without at least a nominal down payment.

I consider this /\ a great answer!

[TaxGuyBill]

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@s-cain wrote:

The problem is the client received a 1099-S so I believe it needs to be reported.

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Technically, it still doesn't need to be reported.  But in order to avoid an IRS notice, it is common practice to report it.

You could just enter a on 8949/Schedule D with an adjustment (to zero out the gain/loss) just to avoid the notice.  HOWEVER, I see a big danger with that because that could be interpreted as electing out of the Installment Sale, and then misreporting the sale.  So I would suggest not doing that.  I suspect I would do the 6252 and entering $1 for the amount received.

[Dusty2]

"interest only until final payment in year 10"

Did they receive any interest payments in 2021?

[s-cain]

They did not receive any payments (interest or principal)

[s-cain]

The distribution from the trust was a credit trust. Dad died years ago and Mom died in 2021. The distribution of the farm land was made to the sons who all are members in a sub-S corp. The sub-S corp is buying the land from the sons.

[s-cain]

The problem is that the land was distributed to the sons from a trust. The sons are selling it to a sub-S corp in which they are all shareholders. That is why their is no consideration.

[sjrcpa]

I'd go with Bill's suggestion and enter $1 as 2021 principal payment.

If you had shared that tidbit from the get go, you could have saved the twenty questions.

[The_AntiTax_Man]

 @s-cain   As I understand it, there were no building improvements on this farm, that it was a sale of bare farmland only.  However, you still might need to allocate some of the sale amount to the farmland improvements [fence, tile, etc] made to the farm and file Form 4797 to report depreciation recapture on said improvements.  The IRC Section 1245 recapture amount would be reported and taxed in the year of sale even if none of the proceeds were received in the year of sale.  The amounts reported on Form 4797 would then change the taxable gain on the Form 6252.  The Form 6252 capital gain percentage would be lower on contract proceeds received in the subsequent tax years. 

Is the S Corp reporting any existing farmland improvements when setting up its depreciation schedule for this farmland?

[s-cain]

You bring up some very good points. It was all land but thank you for bringing up other things to consider.