of Personal Property from an Installment Payment Sale
What is your profit or loss from the sale?
When selling a belonging, you have a few options. You can take the full payment at the time of the purchase or allow the buyer to make smaller payments over time. A purchase that gets divided into multiple payments is installment sale. If the buyer can't pay their dues, you might be able to get your property back. By adding some details to the system, you can figure out if you have lost or gained from your transaction. The calculator is designed with IRS specifications, to help you with your filing. On this page, you can find out what to do if the buyer stops making payments.
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What is an installment sale?
An installment sale refers to a personal property transaction. At the time of the property sale, the seller receives a
small down payment
on the purchase price. The seller then receives the remaining balance through installments over some time. It can be applied to vehicle purchases, appliances, homes, or other personal belongings. This sales method allows the seller to defer part of their capital gains taxes to future years.
It can refer to one payment or more, as long as the payments are received after the tax year that the sale happened. Often the deal requires the buyer to make regular payments for many years. The buyer can have a land contract,
, or legal note with the seller.
It is possible for the buyer to miss their payments. People can over-estimate their budget,
run into costly emergencies
, or even lose their jobs. If the buyer is unable to fulfill their obligations, the seller may be able to take back their property. This is called repossession.
How does property repossession work?
It is important to follow both the terms of a contract and state law when repossessing a property. Some contracts have a grace period that gives buyers some time to pay the past due amounts. Typically, you have to provide the debtor with written notice of your intention to repossess the belonging first.
Once the account is delinquent, you are technically allowed to take action to repossess the property tied to the loan. It is advisable to consult a legal professional in your area regarding this matter. If you were unable to settle the issue, the next step would be to file a court order in the local county.
You would have to fill out an application stating why a judge should allow you to repossess the property. Then you’ll receive a date for a hearing. During the trial, your solicitor should provide all evidence to the judge to justify your claim.
Following the hearing, the judge would decide on the evidence. The judge could either approve the repossession or dismiss the case entirely. If the situation is not as clear, there could be a suspension order or the trial could be postponed (adjourned) to a later date.
A suspension order allows the debtor to keep the property under certain conditions. Usually, the terms of a suspended possession are to pay the regular installments plus any debts. Meanwhile, an adjournment means you should try to take specific remedial steps before hearing the case again.
Repossessing your personal property
If you are repossessing your property after an installment sale, you will have to report to the IRS. You must specify any gains or losses from the repossession along with your basis in the repossessed property. If the debtor sold the belonging back to you, it does not count as repossession.
How you find out your basis in the property depends on whether you reported the sale using the installment method. The way you communicate your purchase affects the way you state your gains or losses. There are different rules when it comes to
real property repossession
Installment method used
: To find your basis in the property, multiply the unpaid balance by your gross profit percentage from the sale. Then subtract that figure from the outstanding balance. The result is your basis in the property.
To get your gain or loss, you have to consider the current fair market value (FMV) of your belonging.
If the FMV is more then the total of your basis, after repossession costs, the difference is your gain.
When the FMV is less than your basis in the property, the result is a loss.
Installment method not used
: obtain your basis in the property by using the fair market value (FMV) at the time of the sale. Subtract all the payments you received from the original sale amount. The resulting figure is your basis in the installment obligation.
To realize your gain or loss, you should start by adding the repossession costs to your basis.
If the original FMV is more then your basis after repo costs, the result is your gain.
If the fair market value is less then your basis and costs, you’re at a loss.
If any of this sounds confusing, don’t worry. Just add your information to the calculator to find out where you stand.
How to use the calculator
The calculator is very easy to use. It just requires some details relative to the personal property you are repossessing. It can be a belonging like an appliance or a car. It could even be a house or a condo. Let’s review the information together.
: On the first line of the calculator indicate the outstanding balance on your personal belonging. This is the remaining balance from the sale at the time of delinquency. You can use the up or down arrows or your keyboard to input the values easily.
: Add the current fair market value of your personal property on the second line.
: On the third line, please indicate your gross profit from the original sale. You can mark this figure as a percentage.
: Include any repossession costs to the last line of the calculator. You should consider legal fees, court costs, and any payments to a third party for getting back your belonging.
Once this has been added to the system, you can view your result. Below the inputs is a smart summary of your reportable profit or loss from the repossession. You can als o see a bar graph of you r answer. Using your result, you can take the necessary steps to report your profit or loss accurately.
Remember to bookmark this calculator. You can save it to the home screen of your smartphone or tablet for quick access to this tool. You can return as you get updates regarding your property repossession. If you found this page useful, you can promote us on social media by using the share feature.