Does the $250,000 capital gain exclusion on a home sale apply when the sale is an installment sale? For tax purposes, what is the date of sale on an installment sale?

Forum|Forum|7 years ago
June 3, 2019
3 replies
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The buyer is renting with option to purchase, and they need to get a mortgage by March, 2018. They move in on Feb 1, 2017, and have been making payments that include a down payment.

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Critter

Employee

For 2017 you didn't sell your personal residence yet ... instead you converted the home to a rental which needs to be reported on a Sch E.

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HStansfieldAuthor

Employee

OK, so what do I do with the payments that count as down payment, not rent?

Critter

Employee

Depending on how the agreement is worded the down payment portion of the rent should be put into an account like the security deposit since it is not your money until complete the option to purchase the property ... so it is not income to you yet.

https://ttlc.intuit.com/replies/4870039

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HStansfieldAuthor

Employee

Thanks...I'm more confused than satisfied. The agreed upon sale price is close to market value, and the rent paid is also more or less market value. Daily interest IS listed in the contract, as is a requirement for two larger cash payments to be considered down payments, that came to me, the seller, and were not held in escrow. The agent will not receive his commission until closing. So, the question is, which is the safer bet? To list it as an installment sale, or as a rent conversion? At the time of closing--hopefully early in 2018, I will still qualify for the $250,000 capital gains exclusion based on the 2 out of 5 year rule--unless that no longer applies on the rental conversion.