Capital Gains, Home Sales, and Installment Sales
Learn the decision pattern the exam can test, then apply it to a realistic taxpayer fact pattern.
What changes the answer?
Deferring payment under an installment sale changes recognition timing but does not automatically change the character of the gain.
A tax-practice scenario
A homeowner sells a residence with prior rental use and takes a buyer note. Test exclusion, depreciation recapture, and installment treatment in order.
Identify the taxpayer, entity, transaction, and tax period first. Write the controlling tests in order, apply only the relevant facts, and keep the reporting result separate from any planning recommendation.
Do not take this shortcut.
Applying the home-sale exclusion to depreciation-related gain or to a seller who fails the ownership and use tests.
Turn the rule into recall.
Solve property questions in a fixed sequence: transaction, basis, character, exclusion, recapture, then timing.
- ExplainState the governing distinction without notes.
- ApplyChange one fact in the scenario and predict the new result.
- RetrieveAnswer an unseen question, then review every option.
Official source and scope
This lesson follows the current PSI content outline and uses the IRS reference below for the underlying tax or practice framework. Always confirm current forms, instructions, thresholds, and effective dates before advising a taxpayer.