Reporting Gain from Sale of Stock in 2019 - Can Norma Use Installment Method?

Norma's Stock Sale Transaction in 2019

In 2019, Norma sold Zinc, Inc., common stock for $100,000 cash and a note receivable for $900,000. The note was due in 2020 with accrued interest at the Federal rate. Norma's basis in the stock was $250,000. This was Norma's only installment sale transaction.

Which of the Following statements is correct?

Answer: Norma cannot use the installment method to report her gain if the stock is listed on the New York Stock Exchange.

Explanation:

Usually if you sell a capital asset on installments, and the buyer is given more than 1 year to pay the installments, you can spread the capital gains taxes over the period in which you receive the installments. For example, if you receive 10 yearly payments, you will pay capital gains tax based on each yearly payment received, and not in a single lump sum. The installment method is only valid for reporting gains, it is not valid for reporting losses.

However, the IRS Publication 537 also establishes that: "You can’t use the installment method to report gain from the sale of stock or securities traded on an established securities market. You must report the entire gain on the sale in the year in which the trade date falls."

Since Norma sold stock traded at the NYSE, then she cannot use the installment method to report her capital gains.

Do you have any questions related to reporting capital gains on stock sales?

Answer:

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