Discussion:Business Sale Foreclosure

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Discussion Forum Index --> Tax Questions --> Business Sale Foreclosure

TLF (talk|edits) said:

19 January 2006
A client sold their business (video rental store) 3 years ago is reported it on Form 6252 installment sale. The people who purchased the business from my clients still have one year of payments to make. They had to close the business due to not enough business. They could not pay the last year of payments, so they turned over the video inventory back to my clients.

The inventory is worthless because it is VHS tapes and not DVD's. My clients have tried to sell the video's, but can't get much out of them. They are owed $ 3600.00 and can only get about $ 300.00 out of the video's. Can they take a loss on the last year worth of pmts $ 3600.00 even though they have been reporting the sale on Form 6252? Or do they just not report any more income from the sale.

Riley2 (talk|edits) said:

20 January 2006
A loss is available for the difference between their basis in the installment obligation and $300. The basis in the installment obligation is equal to $3,600 minus the deferred gain at the end of last year.

On the other hand, if the basis in the installment obligation is less than $300, your client would report a gain.

See Sec. 453B.

TLF (talk|edits) said:

20 January 2006
So they will not report any more income from the installment agreement because payments stopped, and they will take a loss of $3,300.00 ( 3600.00 - 300.00) on schedule 4797 or D?

Thanks for the info.

Riley2 (talk|edits) said:

20 January 2006
Well, not quite. The loss is the difference between the basis in the note and the amount received. The basis in the note is something less than $3,600; so, the loss will be less than $3,300. The basis in the note is $3,600 minus the deferred gain at the end of the prior year. The deferred gain at the end of the prior year is the total gain on the sale minus the gain that had been reportable in prior years.

TLF (talk|edits) said:

20 January 2006
That makes sense. Thanks for the help.

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