Say I sold a business for $1,000,000, getting $600,000 immediately and $400,000 in 5 years if contingencies are met. Inexplicable I put the entire $1,000,000 on my income tax return, and in 5 years get none of the contingent $400,000. Do I then have a $400,000 capital loss? If not, do I have any kind of tax benefit from not getting the $400,000.
I am aware it should have been an installment sale, but that is beside the point.
"Confused" wrote
Well, there is, or could be, some basis in the business assets sold. But assuming the numbers are an example and assuming that you had $1,000,000 profit reported all in year 1, then when you don't receive that $400,000 of payments, then in that year you can take a loss for the monies not received. The tax treatment, capital -v- ordinary, would be reported the same as the original sales profits.
Remember that there is (should be) interest on that deferred payment, either actual or imputed, and reportable in the year received.
And yes, the installment sale rules were an option, but by reporting the sales proceeds in year 1 you elected out of the installment sale reporting.
Well, there is, or could be, some basis in the business assets sold. But assuming the numbers are an example and assuming that you had $1,000,000 profit reported all in year 1, then when you don't receive that $400,000 of payments, then in that year you can take a loss for the monies not received. The tax treatment, capital -v- ordinary, would be reported the same as the original sales profits.
Remember that there is (should be) interest on that deferred payment, either actual or imputed, and reportable in the year received.
And yes, the installment sale rules were an option, but by reporting the sales proceeds in year 1 you elected out of the installment sale reporting. ================== I agree with the above, but see a further problem: As the $400k was contingent (and unsatisfied at the time of sale), should it have been included to begin with? There was no unrestricted right to receive the amount (think "claim of right" doctrine term).
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