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Contract for Deed & 1099

My siblings and I recently sold the house we inherited from our parents under a contract for deed. The terms of the contract were as follow. Buyer shall purchase home for $48K with payments of $400/month for the first 24 months after which the remaining balance will be due. To this point we have collected $4400 ($4000 in calender year 2009) We inherited the house in Oct 96 and have the County tax valuation which places the 97 tax value at $45K. Our Attorney who drafted and executed the Contract For Deed sent each of us a 1099S showing the gross proceeds of $12K. Originally I used the 1040D to compute my gain. $48K sale price-$45K Inheritance value for a $3K gain making my 1/4 of the gain $750. My question is should we have even received a 1099S each for $12K since we have not yet received that amount? I am wondering if in another year when the buyer obtains a mortgage for almost $40k will we again each recieve a 1099S for close to $10 K making this a double tax

Mark

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Reply to
msolie
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The 1099-S is appropriate, after all you did sell the house.

Because you're carrying the mortgage yourselves, you have several options for reporting the gain. You can report it all in the year of the sale OR you can use the Installment Method, Form 6252, to report the gain over the period of time in which you actually collect it. You should seriously consider using Form 6252 and report the gain over the term of the payments.

Consider this - if you report and pay tax on the full gain now, which you can do, and later he defaults on the payments and you repossess the house, you'll to deal with adjusting for the entire amount you paid tax on. Should be no problem if he refinances in 24 months as planned. But what if he asked for 24 more months and you grant it AND then in the fourth year he defaults. You will have paid tax on the gain in a year that is now closed and you won't be able to amend to remove the gain. It can be dealt with in another manner but it isn't nearly as clean.

I'd suggest you work with a pro, at least for this year, so you can get it done right, understand your options and know how to proceed in the future.

Gene E. Utterback, EA, RFC, ABA

Reply to
Gene E. Utterback, EA, RFC, AB

Yes, the 1099S for $12,000 is correct. (48K sale price divided by 4 owners)

There will be no future 1099S regarding this sale.

You are apparently planning to (or maybe already have) not treat this as an installment sale but declared all gain in 2009. No further Sched D then transactions for this sale.

Don't forget to declare the interest income received on this note each year.

Reply to
CMS_VA_CPA

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