Tax Minute

INSTALLMENT SALES

There are many ways you can save on taxes, so listen up! You may own an asset, for example, a rental property or a business, which you no longer want but cannot find a buyer who can get a conventional loan to purchase it. There is a way you can sell the property and defer the taxes on the sale as well. If the buyer pays you in installments, the IRS will also let you pay the tax bill on your profit in installments. You must charge interest on the deal, and each payment you receive will have several parts depending on what was sold. Specifically, the tax rate on the payments will range from zero for your return of principal up to your top taxable rate for interest and ordinary income amounts received. Installment sales can be a very effective tool in closing a deal that might otherwise not happen, while at the same time deferring paying income taxes.

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