Installment sale after death of seller.

[deirmartin]

Installment sale- - After 10 years the seller died. Buyer repaid remaining balance after death of seller. 4 heirs, one of which is buyer, received proceeds. How should this be reported? All gain on decedents 1041, or all gain on decedents 1041 with k-1s issued to each heir? Does buyer/heir get special treatment?

[George4Tacks · Accepted solution]

IRS Pub 537 "Transfer due to death.

The transfer of an installment obligation (other than to a buyer) as a result of the death of the seller isn’t a disposition. Any unreported gain from the installment obligation isn’t treated as gross income to the decedent. No income is reported on the decedent's return due to the transfer. Whoever receives the installment obligation as a result of the seller's death is taxed on the installment payments the same as the seller would have been had the seller lived to receive the payments."

You need to look at the decedent's 6252 to get the proper amounts to show on the 1041. The buyer is just like any of the other heirs, assuming they were not the original purchaser from the decedent. 

[deirmartin]

The property that created the installment sale was sold to heir/Son.  He has been making the payments for the last 10 years.  Does his share (25%) get treated differently than the others?

[George4Tacks]

I do not believe so. The only time the installment sale would continue with the same buyer is when the original terms are simply restated (e.g. interest rate is changed, or term extended). Son now as an increased basis, but, in my opinion, has to include 25% of Dad's gain on his K-1 (assuming as simple trust and proper distribution was made.)

[George4Tacks]

Maybe @abctax55 has more insight.

[abctax55]

Huh...I only do a few 1041s.  I think we need Susan, but she's on vacation.

[IRonMaN]

That answer makes sense to me - but it could just be the anvils talking.

[taxiowa]

It is considered IRD so amounts paid after date of death are attributable to benes just as George stated.