The contract price in an installment sale, for tax purposes, is generally defined as the selling price less the existing mortgages assumed by the buyer. This definition is crucial for correctly determining the taxable portion of payments received from the sale.
In the context of installment sales, the Gross Profit Ratio is the proportion of gross profit (gain) to the contract price, used to determine the taxable gain from periodic receipts from the buyer.
An installment sale is a sales arrangement where the buyer agrees to make payments over time rather than paying the full amount upfront. This type of sale is commonly used in real estate transactions and for higher-priced goods or services.
The principal amount is the face value of a financial obligation such as a bond or a loan that is required to be repaid at its maturity date, distinct from the interest accrued.
When no interest or low interest is provided in an installment sale agreement, part of each payment will be treated as interest. The amount treated as interest is referred to as unstated or imputed interest.
A wraparound mortgage is a loan arrangement where an existing mortgage is retained, and a new, larger loan is provided. The new lender remits payments on the existing loan and usually experiences a higher yield due to the difference in interest rates between the old and new loans.
