Sold LLC biz (B&B/Hospitality) but carrying the mortgage - timing on declaring cap gain?

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Must the cap gain all be paid up front, even when funds are yet to be rec'd, or is there a provision to allocate incoming principal paydowns vs. cost basis as payments are rec'd?
(Short term note, 2~4 yrs, with monthly interest payments plus irregular balloon principal payments).

Prior to sale of the LLC it also sold off an asset at a loss. I assume the the full loss will apply to offset 1st yr filing? (small loss in relation to the cap gain).

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  • PhillipB
    PhillipB FreeTaxUSA Team
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    Hello, and thank you for joining the community.

    First, regarding the asset for which there is a mortgage. If that asset was sold for a gain, you would report this as an installment sale. With installment sales, you report a portion of the gain each year that is proportionate to the payments received. For example, you sale something for a 100k gain with a 10 year note. The first year, you received 10k only. The 10k would be the only gain reported for that year. You would also need to report interest income from their payments. If the asset with the mortgage was sold for a loss. You would report the interest income for their payments, and a loss in the year of sale (assuming it is a business use asset).

    The loss would (as long as the asset was used as a business asset of the LLC) would be deductible in the year of sale as an ordinary loss.

    Let me know if there is anything else that I can do for you.

  • Sonrisa
    Sonrisa Member Newcomer
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    "Installment Sale" … Thank You!