Installment Sale

 INSTALLMENT SALE

a.              Installment payment of Capital Gain Tax is applicable only to sale of shares of stock not  traded in   the local stock exchange and real asset considered as capital asset (initial  payment must   not exceed 25% of selling price)

b.               The 25% rule is applicable also to personal capital asset and ordinary asset but only to  determine whether gain on sale is to be recognized on a deferred basis (Initial payment  must not exceed 25% of selling price) or not

c.                Apply the rule on holding period for personal capital assets

Initial payment refers to the total payments receive in cash or property (other than evidences of indebtedness) by the seller upon or before the execution of the instrument of sale during the taxable year of the disposition of the real property. It also includes the excess of mortgage assumed by the buyer over the basis (cost) to the seller.

Down payment                                                  xxx

Add: installment payments in the year of sale    xxx

Less: Excess of mortgage assumed by
          buyer over the cost of the seller              xxx

Initial payments                                               xxx

Contract price is usually:

·         The selling price

·         The selling price reduced by the mortgage assumed by the buyer on the property     that he purchased.

·         The selling price reduced by the mortgage assumed by the buyer and increased by   the excess of mortgage assumed by the buyer over the basis (cost) of the seller.

Selling price                                                               xxx
Less: mortgaged assumed by the buyer, if any             xxx
Balance                                                                      xxx
Add: excess of mortgage over the cost of the seller     xxx
Contract price                                                            xxx

Selling price                                                                                              
Cash received                                                            xxx
FMV of property received                                           xxx
Installment obligations of the buyer
(evidence of indebtedness)                                         xxx
Mortgage assumed by the buyer                                  xxx

Tax Due and Payable:

Tax due = Capital Gains Tax  / Contract Price x Payment received or collection