New Visitors Privacy Policy Sponsorship Contact Us Media
Baby Boomers Family Green Home and Auto In Critical Condition Just Starting Out Lifestyle Money
- advertisement -
Bankrate.com
News & Advice Compare Rates Calculators
Rate Alerts  |  Glossary  |  Help
Mortgage Home
Equity
Auto CDs &
Investments
Retirement Checking &
Savings
Credit
Cards
Debt
Management
College
Finance
Taxes Personal
Finance

Reporting installment sale income

 

Dear Tax Talk,
We hold a mortgage on a rental property we sold, and now the buyer is talking about getting a lower interest rate from a bank and wants to pay the mortgage off early. We have a penalty clause that if paid off before 15 years, they must pay a penalty of 10 percent. Do we have to claim the penalty amount as capital gains? -- Gene

- advertisement -

Dear Gene,
If you sold the rental property and took back a mortgage, chances are you're reporting the sale as an installment sale.

In an installment sale, part of each payment is interest and part is principal. The interest is ordinary income and should be reported on Schedule B.

The principal payments are capital gain and should be reported on Form 6252 and carried to the appropriate schedules on your tax return.

A prepayment penalty on a mortgage is considered additional interest income. Accordingly, report the additional interest on Schedule B.

 
-- Posted: June 10, 2003
     

 

 
 

 

Looking for more stories like this? We'll send them directly to you!
Bankrate.com's corrections policy
Print   E-mail

Compare Rates
NATIONAL OVERNIGHT AVERAGES
30 yr fixed mtg 4.45%
48 month new car loan 3.77%
1 yr CD 0.89%
Rates may include points



Mortgage calculator
See your FICO Score Range -- Free
How much money can you save in your 401(k) plan?
Which is better -- a rebate or special dealer financing?
VIEW MORE CALCULATORS

BASICS SERIES
Tax Basics
Knowing how to file can save you money.
Filling out the W-4 form
What is my tax rate?
How to itemize deductions
Tax credits can lower bill
Death and taxes
Tax record-keeping

MORE ON BANKRATE
Income tax rates  
Tax forms  
State taxes  
Tax basics


- advertisement -
 
- advertisement -

About Bankrate | Privacy Policy/Your California Privacy Rights | Online Media Kit | Partnerships | Investor Relations | Press Room | Contact Us | Sitemap
NYSE: RATE | RSS Feeds |

* Mortgage rate may include points. See rate tables for details. Click here.
* To see the definition of overnight averages click here.

Bankrate.com ®, Copyright © 2014 Bankrate, Inc., All Rights Reserved, Terms of Use.