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Intermediate2 hours15 terms

Installment Sale Tax Terms Collection

This curated collection offers key terms that might be helpful when exploring Form 6252 and real estate installment sales. It's a reference for understanding commonly referenced concepts and their tax implications, not a comprehensive guide.

Term Collection

1

Tax Deferral

Tax deferral is the legal postponement of paying taxes on investment gains or income until a future date, allowing capital to remain invested and grow through compounding.

Intermediate13-16 min
2

Gross Profit

Gross profit represents the revenue remaining after deducting the direct costs associated with producing or acquiring the goods sold or services rendered, before accounting for operating expenses, interest, and taxes. It is a key indicator of a property's or business's operational efficiency.

Intermediate2-3 min
3

Adjusted Basis

The adjusted basis is the original cost of an asset, such as real estate, plus the cost of any capital improvements, minus any depreciation deductions and certain other adjustments. It's crucial for calculating taxable gains or losses upon sale.

Intermediate13-14 min
4

Form 6252: Installment Sale Income

Form 6252 is an IRS tax form used by real estate investors to report income from an installment sale, where at least one payment for the property is received after the tax year of the sale. It allows for the deferral of capital gains tax until payments are actually received.

Intermediate5 min
5

Installment Sale

An installment sale is a transaction where a seller finances the buyer's purchase of property, receiving at least one payment after the tax year of the sale, thereby deferring capital gains taxes over time.

Intermediate15-18 min
6

Recognized Gain

Recognized gain is the portion of a capital gain from the sale or exchange of an asset that is immediately subject to taxation in the current tax period. It represents the profit realized that cannot be deferred or excluded under specific tax provisions.

Intermediate5 min
7

Depreciation Recapture

Depreciation recapture is an IRS rule that taxes the gain from the sale of depreciated property at ordinary income tax rates, up to the amount of depreciation previously claimed, ensuring tax benefits are accounted for upon sale.

Intermediate15-18 min
8

Promissory Note

A promissory note is a legally binding written promise by one party to pay a specific sum of money to another party on a specified date or on demand, outlining all loan terms.

Beginner15-18 min
9

1031 Exchange

A 1031 Exchange allows real estate investors to defer capital gains and depreciation recapture taxes when selling an investment property by reinvesting the proceeds into a new "like-kind" investment property within strict IRS timelines.

Advanced15-18 min
10

Rental Property

A rental property is real estate purchased with the intent to generate income through tenant rent payments and potential property value appreciation.

Beginner13-14 min
11

Resale Value

Resale value is the estimated price a property could sell for in the current market, or at a specific point in the future. It's a key factor for real estate investors to assess potential profits and investment viability.

Beginner2-3 min
12

Seller Financing

Seller financing is an arrangement where the seller of a property provides a loan to the buyer, who then makes payments directly to the seller instead of obtaining a traditional mortgage.

Intermediate13-14 min
13

Purchase Price

The purchase price is the total amount of money a buyer agrees to pay a seller for a property, representing the agreed-upon value before additional closing costs.

Beginner15-18 min
14

Investment Payments Received

The total monetary inflows an investor receives from their real estate assets, including rental income, loan repayments, or distributions from partnerships, before deducting any expenses.

Intermediate5-6 min
15

Installment Method

The Installment Method is a tax deferral strategy allowing sellers of real estate to spread the recognition of capital gains over the period in which payments are received, rather than recognizing the entire gain in the year of sale.

Intermediate5 min

Common Questions