IRS Publication 537 — Installment Sales
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“• The property had a sales price over $150,000. In de- termining the sales price, treat all sales that are part of the same transaction as a single sale. • The total balance of all nondealer installment obliga- tions arising during, and outstanding at the close of, the tax year is more than $5 million.”
If the buyer assumes any other debts, such as a loan or back taxes, it may be considered a payment to you in the year of sale.
If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. Compare the debt to your installment sale basis in the property being sold. If the debt is less than your installment sale basis, none of it is treated as a payment. If it’s more, only the difference is treated as a payment. If the buyer assumes more than one debt, any part of the total that’s more than your installment sale basis is considered a payment. These rules are the same as the rules discussed earlier under Buyer Assumes Mortgage . However, they only apply to the following types of debt the buyer assumes.
• Those acquired from ownership of the property you’re selling, such as a mortgage, lien, overdue interest, or back taxes.
• Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. If the buyer assumes any other type of debt, such as a personal loan or your legal fees relating to the sale, it’s treated as if the buyer had paid off the debt at the time of the sale. The value of the assumed debt is then considered a payment to you in the year of sale.
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