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    • Keith
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      This calculation determines both the principal risk premium and the interest rate risk premium for the self-cancellation feature of the selected type of installment note. It does this in a manner which is consistent both with the installment sale and imputed interest rules of IRC §453, 483, 1274, and 1274A and the gift tax valuation rules for remainders using the discount rate of IRC §7520 and the mortality factors of Table 80CNSMT, Table 90CM, or Table 2000CM.

      The calculation also presents summary statements and repayment schedules for the case where the risk premium is included in principal and where it is included in the interest rate. These statements and schedules show the allocation of interest, principal (and its components of gain and basis recovery), and recapture (if any) both in the year of sale and in subsequent years over the selected term of the note.

      The Summary Tab will include the following results:

      Mortality Risk Premium (Principal) This is the amount that must be added to the principal of the note in order for the present value of the future payments of interest and principal to equal the unpaid purchase price.

      Total Sale Price The sum of the fair market value of the property and the principal premium (if any).

      Principal Amount of Note The total sale price, less the initial down payment.

      Mortality Risk Premium (Interest) This the amount that must be added to the market interest on the note in order for the present value of the future payments of interest and principal to be equal to the unpaid purchase price.

      Total Interest Rate The sum of the market rate of interest on the note and the interest premium (if any).

      Annual Principal Payments If the note payments are level principal, the amount of each year’s principal installment. (The other types of notes result in varying principal payments.)

      Annual Interest Payments If the note payments are interest only, the amount of each year’s interest payment. (The other types of notes result in varying amounts of annual interest.)

      Total Annual Payments If the note payments are amortized, the total amount of each year’s principal and interest to be paid. (The other types of notes result in varying totals of principal and interest.)

      Total Interest To Be Paid The total amount of the interest to be paid on the note if payments continue to the end of the term of the note (i.e., the seller does not die before the end of the term of the note).

      Total Capital Gain The total amount of capital gain to be realized on the sale, both from the original down payment and principal payments under the note.

      Profit Percentage The amount of capital gain divided by the total sale price (including any principal premium). The amount of gain to be realized each year upon each payment of principal will be the amount of the payment times this percentage.

      Capital Gain Recognized in Year of Sale The profit percentage, multiplied by the initial down payment.

      Basis Recovery in Year of Sale The amount of nontaxable basis to be recovered from the initial down payment.

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