IRS Publication 537 — Installment Sales
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“Special Rules for Capital Gains Invested in QOF If you have a capital gain, you can invest that gain into a QOF and elect to defer part or all of the gain that is other- wise includible in income. The gain is deferred until you sell or exchange the investment in the QOF or December 31, 2026, whichever is earlier. Y ou may also be able to permanently exclude the gain from the sale or exchange of an…”
maturity less any OID or, if there’s no OID, the stated redemption price at maturity appropriately discounted to reflect total unstated interest. See Unstated Interest and Original Issue Discount (OID), later.
Debt not payable on demand or readily tradable. Any evidence of debt you receive from the buyer that is not payable on demand or readily tradable generally isn’t considered a payment. This is true even if the debt is guaranteed by a third party, including a government agency. Third-party note. If the property the buyer gives you is a third-party note (or other obligation of a third party), you’re considered to have received a payment equal to the note’s FMV . Because the FMV of the note is itself a payment on your installment sale, any payments you later receive from the third party aren’t considered payments on the sale. The excess of the note’s face value over its FMV is market discount that is subject to the market discount rules under sections 1276 and 1278. Exclude this market discount in determining the selling price of the property. However, see Exception under Property Used as a Payment, earlier. Example. You sold real estate in an installment sale. As part of the down payment, the buyer assigned to you a $50,000, 8% interest third -party note. The FMV of the third-party note at the time of the sale was $30,000. This amount, not $50,000, is a payment to you in the year of sale. The excess of the $50,000 face value of the note over the $30,000 FMV , or $20,000, is market discount that is subject to the market discount rules in sections 1276 and 1278.
Bond. A bond or other evidence of debt you receive from the buyer that’s payable on demand or readily tradable in an established securities market is treated as a payment in the year you receive it. For more information on the amount you should treat as a payment, see Exception under Property Used as a Payment, earlier. If you receive a government or corporate bond for a sale before October 22, 2004, and the bond has interest coupons attached or can be readily traded in an established securities market, you’re considered to have received payment equal to the bond’s FMV . However, see Exception under Property Used as a Payment, earlier. Buyer’s note. The buyer’s note (unless payable on demand or readily tradable) isn’t considered payment on the sale. However, its full face value is included when figuring the selling price and the contract price. The selling price should be reduced by any OID or unstated interest. Payments you receive on the note are used to figure your gain in the year received.
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