Section Tax 2.95 - Reporting of installment sales by natural persons and fiduciaries(1) GENERAL. The Wisconsin tax treatment of installment sales by natural persons and fiduciaries is determined under the Internal Revenue Code in effect under s. 71.01(6), Stats. Installment sales may be made of either real or personal property. Because for Wisconsin purposes, at the time of the sale, the seller may be either a resident or nonresident, and the property may be realty or personalty, tangible or intangible, and may be located within or without Wisconsin, special situations that are not addressed in the Internal Revenue Code may arise which affect the reporting of the sale.(2) SITUS OF INCOME. Under s. 71.04(1) (a), Stats., all income or loss of resident individuals shall follow the residence of the individual. A nonresident's income or loss derived from the sale of real property or tangible personal property follows the situs of the property. Interest income of a nonresident and income from the sale of intangible personal property follows the individual's residence.(3) TAXATION OF PROCEEDS FROM INSTALLMENT SALE OF INTANGIBLE PERSONAL PROPERTY. (a)Resident seller. If the seller is a Wisconsin resident, the portions of each installment payment that represent gain and interest income from the sale which are received while the seller is a resident of this state are taxable by Wisconsin. If the resident seller abandons Wisconsin domicile and establishes residence in another state, neither the gain nor interest payments received while a nonresident is taxable by Wisconsin.(b)Nonresident seller. If the seller is not a Wisconsin resident, the portions of each installment payment that represent gain and interest income from the sale are not taxable by Wisconsin. If the seller subsequently becomes a Wisconsin resident after the sale, the portion of each installment payment received after becoming a Wisconsin resident representing gain is not taxable by Wisconsin, but the portion representing interest on the installment note is taxable by Wisconsin.(4) TAXATION OF PROCEEDS FROM INSTALLMENT SALE OF REAL PROPERTY OR TANGIBLE PERSONAL PROPERTY. Upon the sale of real property or tangible personal property reported under the installment method: (a)Wisconsin Property. 1. If the property is located in Wisconsin and the seller is a Wisconsin resident, the portion of each installment payment that represents gain and interest income from the sale is taxable by Wisconsin.2. If the property is located in Wisconsin and the seller is not a Wisconsin resident, the portion of each installment payment that represents gain is taxable by Wisconsin. Interest income of a nonresident is not taxable by Wisconsin.(b)Out-of-state property. For property located outside Wisconsin which is sold in taxable year 1975 or thereafter: 1. If the sale occurs while the seller is a Wisconsin resident and the seller is a Wisconsin resident at the time installment payments are received, the portions of each of these installment payments that represent gain and interest income from the sale are taxable by Wisconsin. However, if the seller no longer is a Wisconsin resident when installment payments are received, the portions of each of these installment payments that represent gain and interest income from the sale are not taxable by Wisconsin.2. If the sale occurs while the seller is not a Wisconsin resident and the seller is a Wisconsin resident at the time installment payments are received, the portion of each of the installment payments that represents gain is not taxable by Wisconsin, but interest income from the sale is taxable. However, if the seller is not a Wisconsin resident at the time installment payments are received, the portions of each of these installment payments that represent gain and interest income from the sale are not taxable by Wisconsin. Note: For taxable years prior to 1975, s. 71.07(1), Stats., provided that for Wisconsin income taxation purposes, income or loss derived from the sale of real property or tangible personal property followed the situs of the property. Interest income and income or loss from the sale of intangible personal property followed the individual's residence. Therefore, if real property or tangible personal property which was located outside Wisconsin was sold on the installment method prior to taxable year 1975:
1) The portion of each installment payment that represents gain is not taxable by Wisconsin regardless of whether the seller is a resident or nonresident of Wisconsin at the time payments are received, regardless of whether the payments are received in 1975 or in any subsequent year.2) The portion of each installment payment that represents interest income is taxable by Wisconsin if the seller is a Wisconsin resident at the time payments are received. If the seller is a nonresident of Wisconsin at the time payments are received, the interest portion is not taxable by Wisconsin.(5) TAXATION OF PROCEEDS FROM SALE OF INSTALLMENT OBLIGATION. If the sale of an installment obligation, i.e., an individual's right to unpaid installments from the sale of property, occurs while the seller is a Wisconsin resident, gain or loss on the sale is taxable by Wisconsin. Internal Revenue Code section 453B provides that any gain or loss resulting from the disposition of an installment obligation shall be considered as resulting from the sale or exchange of the property in respect of which the installment obligation was received. Therefore, if the sale of an installment obligation occurs while the seller is not a Wisconsin resident, gain or loss on the sale is taxable by Wisconsin where the installment obligation resulted from the sale of real property or tangible personal property located in Wisconsin. Example: In 2016 an Illinois resident sells Wisconsin real estate for $140,000. The adjusted basis of the property is $70,000 which results in a gross profit percentage of 50%. The seller receives a down payment of $40,000 and an installment note of $100,000 for the balance. In 2017, after receiving a $60,000 payment on the principal plus interest of $4,000, the installment obligation is sold for $45,000. The seller's Wisconsin taxable income from these transactions is as follows:
| | Wisconsin Income |
2016- Selling price | $140,000 | |
Wisconsin adjusted basis | 70,000 | |
Gross profit | $70,000 | |
Gross profit percent | 50% | |
Down payment received | $40,000 | |
Profit reportable (50% x $40,000) | 20,000 | $20,000 |
Total Wisconsin Income | | $20,000 |
2017- Payment on principal received | $60,000 | |
Profit reportable (50% x $60,000) | 30,000 | $30,000 |
Interest received | 4,000 | -0- |
Sale of installment obligation: | | |
Selling price | 45,000 | |
Less basis - unpaid balance of $40,000 less unpaid profit due of $20,000 ($40,000 x 50%) | 20,000 | |
Gain on sale of installment obligation ($45,000 - $20,000) | 25,000 | 25,000 |
Total Wisconsin Income | $55,000 |
Wis. Admin. Code Department of Revenue Tax 2.95
Cr. Register, January, 1979, No. 277, eff. 2-1-79; r. and recr. (2) and (5) (b) 2.a. and b., am. (4) (a) and (b), (5) (b) 1.a., Register, September, 1983, No. 333, eff. 10-1-83; r. and recr. (1), r. (2), (3) (a), 5. (b) 1. (intro.), a. and b., renum. (3) (b) to be (2) and am., renum. (4) to be (3) and am., renum. (5) (intro.) (a) to be (4) (intro.) (a.), renum. (5) (b) 2. (intro.) a. and b. to be (4) (b) (intro.) 1. and 2. and am., renum. (6) to be (5) and am., Register, March, 1991, No. 423, eff. 4-1-91.Amended by, CR 19-141: am. (5) (Example) Register September 2020 No. 777, eff. 10/1/2020 Section Tax 2.95 interprets ss. 71.01(6) and 71.04(1) (a), Stats.