How do you calculate Gross Profit Percentage for Installment Sales. My boss purchased this property in 2000 and sold it in 2003 as an installment sale ($30,400, 8% int, for 15 years)? His previous accountant/bookkeeper did not use the installment sales method on his prior tax returns. How would I calculate the GPP for this years tax return without having the previous years information.

ANSWER

The BIDaWIZ Team's Answer:

The gross profit percentage is the sale price of $30,400 less the basis of $24,000 divided by the sale price of $30,400 (($30,400 - $24,000)/$30,400)) = 21%. The initial payment would be the sale price of $30,400 divided by 15 or $2,026.67 for the first year. The realized gross profit for the first year would be 21% * $2,026.67 or $425.60. This is how you recognize the realized gross profit over time, which is what is the purpose of an installment sale as noted in IRS Publication 537.