CCH Federal Taxation Basic Principles
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. The full amount of any depreciation recapture must be recognized in the year of sale, even if no payments are received in that year. [Code Sec. 453(i)] The remaining gain is Code Sec. 1231 gain or long-term capital gain.
The contract price should NOT include seller’s debt relief (i.e., seller debt assumed by buyer).
If Code Sec. 1231 property (or capital gain property) is sold under an installment sales contract entered into prior to May 7, 1997 installments received after May 6, 1997 are the lower rate (i.e., 10%, 15%, 20%, or 25% rates) under the new law. Of course, if the property consists of “collectibles, then the maximum capital gain rate is 28% under current law.
Installment Method—Solution Step Four
Chapter 11, Exhibit 25b