[PasstheCPA7]

NINJA Question –

Hi guys,

I was reading about Installment Sales in the NINJA notes and the formula says: Contract Price = Sales Price – (Buyer Liability). But, is this incorrect? Shouldn’t it be Sales price + Seller’s liability relief? The seller is the one who is selling the asset to the buyer and if the seller’s asset had debt on it and it is being assumed by the buyer now, this should increase selling price, not decrease it.

Furthermore, I am not even sure if the buyer can even have a liability? How is this possible? The buyer is buying the asset, so, he should have no liability anyway.

Can someone please clarify? Thanks!!

[jeff]

From: https://www.irs.gov/publications/p537/ar02.html#en_US_2014_publink1000221600

Contract price. Contract price equals:

The selling price, minus

The mortgages, debts, and other liabilities assumed or taken by the buyer, plus

The amount by which the mortgages, debts, and other liabilities assumed or taken by the buyer exceed your adjusted basis for installment sale purposes.

[PasstheCPA7]

Thanks Jeff!

[Author]

Replies