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Pay tax sooner on installment sale? Not crazy

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Now that you’re starting to prepare your federal income tax return for 2015, one of your first moves may be to elect to pay more tax on a real estate deal than you have to. But it’s hardly as crazy as it seems.

Strategy: Assess your tax liability on an installment sale. If it suits your purposes, choose to pay all the tax on your 2015 return instead of spreading out tax payments over several years.

Here’s the whole story: Generally, if you receive installment payments from a real estate sale over two or more tax years, the tax on your gain is paid in the years that payments are actually received. This tax deferral treatment is automatic for most installment sales of real estate other than “dealers” like real estate developers.  

If you use installment sale reporting, the taxable portion of the payment is based on the “gross profit ratio.” Gross profit ratio is determined by dividing the gross profit from the real estate sale...(register to read more)

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