How to Report Gain on the Sale of Property using the Installment Method

When reporting gain on the sale of property using the installment method, it is important to understand the proper procedures to follow to comply with tax regulations. In the case of Norma selling Zinc, Inc., common stock for $100,000 cash and a note receivable for $900,000, there are specific rules to adhere to.

The installment method allows taxpayers to recognize gain on the sale of property over the period of time that installment payments are received. In this scenario, Norma's basis in the stock was $250,000. The gain of $75,000 is calculated as the excess of the cash and note receivable received over Norma's basis in the stock.

It is important to note that Norma must recognize the $75,000 gain in 2014, as per the installment method rules. Additionally, she will be liable for interest on the taxes deferred under the installment method. This means that Norma will need to pay interest on the taxes that are deferred as a result of recognizing the gain over time.

One key point to consider is that interest on the taxes deferred under the installment method is generally not owed when the stock is publicly traded. This exception applies in cases where the property sold is publicly traded, and it can impact the amount of interest owed by the taxpayer.

By understanding the regulations and requirements of the installment method for reporting gain on the sale of property, taxpayers like Norma can ensure compliance with tax laws and accurately report their gains over time.