IRS Publication 537 — Installment Sales
This is the passage the answer relied on, shown in the document's own words. The highlighted text is the exact excerpt quoted — extracted verbatim by the citation system, so it cannot be fabricated.
Open official source at page 22 ↗
2022 Deferred Obligation 14,000,000 x Form 6252, line 19, Gross profit percentage (($15,000,000 – $500,000)/$15,000,000) 96.6670% The amount of gain that has not been recognized 13,533,380 x Maximum capital gains tax rate 21% Deferred Tax Liability 2,842,010 22 Publication 537 (2025)
Step 2: Compute the Applicable Percentage The applicable percentage is computed in the year of sale and is used for all subsequent years. = Aggregate face amount of obligations arising in a tax year and outstanding as of the close of such tax year from dispositions with sales price > $150,000 – $5,000,000 Excluded obligation limit per section 453A(b)(2)(B) & section 453A(c)(4)(A) Aggregate face amount of obligations arising in a tax year and outstanding as of the close of such tax year from dispositions with sales price > $150,000 Form 6252, line 7, Selling price minus liabilities assumed 15,000,000 – Form 6252, line 21, Payments received in current year (1,000,000) 2022 Deferred Obligation 14,000,000 (14,000,000 – 5,000,000) = 64.2857% 14,000,000 Step 3: Determine the Underpayment Rate The underpayment rate as of December 31, 2022, was 6%. The underpayment rate as of December 31, 2023 was 8%. The underpayment rate under section 453A(c)(2)(B) is the underpayment rate determined under section 6621(a)(2). Step 4: Compute the Interest Due (Additional Tax) on the Deferred Tax Liability = Deferred Tax Liability x Applicable Percentage x Underpayment Rate Deferred Tax Liability 2,842,010 x Applicable Percentage 64.2857% x Underpayment Rate 6.00% 2022 453A additional tax $109,620 2023 Deferred Tax Liability calculation: 2022 Deferred Obligation 14,000,000 – 2023 Payment received (5,000,000) 2023 Deferred Obligation 9,000,000 x Gross Profit Percentage 96.6670% The amount of gain that has not been recognized 8,700,030 x Maximum capital gains tax rate 21% 2023 Deferred Tax Liability 1,827,006 2023 Section 453A Calculation: Deferred Tax Liability 1,827,006 x Applicable Percentage 64.2857% x Underpayment Rate 8.00% 2023 Section 453A additional tax $93,960 2024 Section 453A Calculation: Note is paid off in full, so no deferred tax liability Deferred Tax Liability 0 x Applicable Percentage 64.2857% x Underpayment Rate N/A 2024 Section 453A additional tax $0 Publication 537 (2025) 23
Excerpt shown from a longer document — use the official source button above to read the complete publication.