Default Installment Sale

Technical topics regarding tax preparation.
#1
Al723  
Posts:
35
Joined:
2-Jun-2018 8:47pm
Location:
Michigan, USA
Hello -

Seller sold a business to buyer on a land contract.
Seller's business was fully depreciated. Ordinary gain was recognized in full in the year of sale even though the sale was structured as an installment sale.

One year later, buyer defaults and stops making payment.
Seller retrieves the business back from buyer through court.

Lets assume the following:
Cost - 80,000
Accum Dep - 80,000
Basis - 0

Sale Price - 80,000
Gain recognized - 80,000 (ordinary gain) Paid all taxes in the same year.

Buyer only paid 10,000 on the 80,000 note and defaulted.
What happens to the taxes paid on the 70,000 gain which was never collected.

Two scenarios,
1 - he takes the business back and continues operation under the new name.
2 - he removes the buyer that defaulted and shuts it down and becomes a vacant building (which was NOT sold). (He owns the building and was collecting rent from buyer)


Thank you!!!
 

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