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2011 Ez Form

Free Tax Filing H&r BlockFile 2011 TaxesAmending A State Tax Return1040nr Ez 2010 FormFree Tax Preparation OrganizerWww.irs.gov Form 1040xWhere Can I File 2011 Tax ReturnFiling 2011 Taxes In 20132011 Free Tax SoftwareWhere To File 2012 Tax ReturnFederal Tax BookletTax Form AmendmentFree Tax Form 1040ezTurbo Tax Free State FilingFree Irs Tax FilingE File Form 1040ez1040ez Form1040x Form For 2012Forms 1040x2011 Federal Tax FormsWww State Tax ReturnState Income Taxes2013 Tax Form 1040ezEfile Tax ReturnsAmend A Tax Return 2012Can I File My 2011 TaxesIrs Form 1040x Tax ReturnIrs 2012 Tax FormsFree Irs Tax FilingFree Tax E File 2012How Do I File My 2011 Taxes2011 Income Tax FormsFree E File 2011Tax Amend FormHow To Amend Last Year's Tax Return1040Free Income Tax FilingHttps Efile State Tax FreeFederal Income Tax AmendmentIrs Tax Return Forms 2011

2011 Ez Form

2011 ez form Publication 926 - Introductory Material Table of Contents Future Developments What's New Reminder IntroductionTax questions. 2011 ez form Future Developments For the latest information about developments related to Publication 926, such as legislation enacted after it was published, go to www. 2011 ez form irs. 2011 ez form gov/pub926. 2011 ez form What's New Social security and Medicare tax for 2014. 2011 ez form  The social security tax rate is 6. 2011 ez form 2% each for the employee and employer, unchanged from 2013. 2011 ez form The social security wage base limit is $117,000. 2011 ez form The Medicare tax rate is 1. 2011 ez form 45% each for the employee and employer, unchanged from 2013. 2011 ez form There is no wage base limit for Medicare tax. 2011 ez form Social security and Medicare taxes apply to the wages of household employees you pay $1,900 or more in cash or an equivalent form of compensation. 2011 ez form Qualified parking exclusion and commuter transportation benefit. 2011 ez form  For 2014, the monthly exclusion for qualified parking is $250 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $130. 2011 ez form Reminder Additional Medicare Tax withholding. 2011 ez form  In addition to withholding Medicare tax at 1. 2011 ez form 45%, you must withhold a 0. 2011 ez form 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. 2011 ez form You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. 2011 ez form Additional Medicare Tax is only imposed on the employee. 2011 ez form There is no employer share of Additional Medicare Tax. 2011 ez form All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. 2011 ez form For more information on Additional Medicare Tax, visit IRS. 2011 ez form gov and enter “Additional Medicare Tax” in the search box. 2011 ez form Credit reduction states. 2011 ez form  A state that has not repaid money it borrowed from the federal government to pay unemployment benefits is a “credit reduction state. 2011 ez form ” The Department of Labor (DOL) determines these states. 2011 ez form If you paid any wages that are subject to the unemployment compensation laws in any credit reduction state, your federal unemployment (FUTA) tax credit is reduced. 2011 ez form See the Instructions for Schedule H (Form 1040) for more information. 2011 ez form Outsourcing payroll duties. 2011 ez form  Employers are responsible to ensure that tax returns are filed and deposits and payments are made, even if the employer contracts with a third party to perform these acts. 2011 ez form The employer remains responsible if the third party fails to perform any required action. 2011 ez form If you choose to outsource any of your payroll and related tax duties (that is, withholding, reporting, and paying over social security, Medicare, FUTA, and income taxes) to a third-party payer such as a payroll service provider or reporting agent, visit IRS. 2011 ez form gov and enter “outsourcing payroll duties” in the search box for helpful information on this topic. 2011 ez form Photographs of missing children. 2011 ez form  The IRS is a proud partner with the National Center for Missing and Exploited Children. 2011 ez form Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 2011 ez form You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 2011 ez form Introduction The information in this publication applies to you only if you have a household employee. 2011 ez form If you have a household employee in 2014, you may need to pay state and federal employment taxes for 2014. 2011 ez form You generally must add your federal employment taxes to the income tax that you will report on your 2014 federal income tax return. 2011 ez form This publication will help you decide whether you have a household employee and, if you do, whether you need to pay federal employment taxes (social security tax, Medicare tax, FUTA, and federal income tax withholding). 2011 ez form It explains how to figure, pay, and report these taxes for your household employee. 2011 ez form It also explains what records you need to keep. 2011 ez form This publication also tells you where to find out whether you need to pay state unemployment tax for your household employee. 2011 ez form Comments and suggestions. 2011 ez form   We welcome your comments about this publication and your suggestions for future editions. 2011 ez form   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 2011 ez form NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 2011 ez form Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2011 ez form   You can also send us comments from www. 2011 ez form irs. 2011 ez form gov/formspubs. 2011 ez form Click on More Information and then click on Comment on Tax Forms and Publications. 2011 ez form   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 2011 ez form Tax questions. 2011 ez form   If you have a tax question, check the information available on IRS. 2011 ez form gov or call 1-800-829-1040 or 1-800-829-4933 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability at 1-800-829-4059) Monday–Friday from 7:00 a. 2011 ez form m. 2011 ez form –7:00 p. 2011 ez form m. 2011 ez form local time (Alaska and Hawaii follow Pacific time). 2011 ez form We cannot answer tax questions sent to the above address. 2011 ez form Prev  Up  Next   Home   More Online Publications
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2014 Tax Season Refund Frequently Asked Questions

How quickly will I get my refund?
We issue most refunds in less than 21 calendar days.

What is the best and fastest way to get information about my refund?
Use the IRS2Go mobile app or the Where’s My Refund? tool. You can start checking on the status of your tax return within 24 hours after we have received your e-filed return or 4 weeks after you mail a paper return.

Will I see a date for my refund right away?
Where’s My Refund? will not give you a refund date right away. We must first receive your tax return and then we have to process it and approve your refund. Where’s My Refund? will give you a personalized date once your refund is approved. 

Will calling the IRS help me get my refund any faster?
Calling us will not speed up your refund. Our phone and walk-in representatives can only research the status of your refund if it has been 21 days or more since you filed electronically, more than 6 weeks since you mailed your paper return, or Where’s My Refund? directs you to contact us. If we need more information to process your tax return, we will contact you by mail. Otherwise Where’s My Refund? has the most up to date information available about your refund. Use the IRS2Go mobile app or use the Where’s My Refund? tool. Both are available 24 hours a day, 7 days a week.

How will I know if IRS received my tax return and if my refund is being processed?
Use the Where’s My Refund? tool to follow your tax return from receipt to issuance of your refund. While your tax return is being processed you can follow it through three stages: Return Received, Refund Approved and Refund Sent.

When can I start checking on my refund status?
You can start checking on the status of your return within 24 hours after we have received your electronically filed tax return or 4 weeks after you mail a paper tax return.

How often does Where’s My Refund? update?
Where’s My Refund? updates are made no more than once per day, usually at night. So there is no need to check more often.

What is happening when Where’s My Refund? shows the status of my refund is: Return Received?
This means we have your tax return and are processing it. Your personalized refund date will be available as soon as we finish processing your return and confirm that your refund has been approved. We issue most refunds  in less than 21 days.

How long will it take for my status to change from “Return Received” to Refund Approved?
Sometimes your status may change from “Return Received” to “Refund Approved” in just a few days, but it could take longer and a date will not be provided until your refund has been approved. However, if Where’s My Refund? shows the status of your refund is: Return Received we have received your tax return and we are processing it.

Does Where’s My Refund always display my refund status with the tracker showing three steps?  
No. In some cases the tracker graphic will not be shown if your return is being reviewed prior to step two: “Refund Approved,” and instead an explanation or instructions will be provided depending on the situation. This can happen even if you previously checked Where’s My Refund and it showed the status as “Return Received” along with the tracker. In these cases be assured that we have your tax return and we are processing it. Please follow the directions provided by Where’s My Refund. Otherwise if we need more information we will contact you – usually by mail. If we send you a letter about your return, please follow the instructions in the letter as soon as possible.

Will ordering a transcript help you determine when you’ll get your refund?
No, a tax transcript will not help you determine when you will get your refund. This is among the common myths and misconceptions that are often repeated in social media. The codes listed on tax transcripts do not provide any early insight into when a refund will be issued. The best way to check on your refund is by visiting “Where’s My Refund?” While transcripts include a lot of detailed information regarding actions taken on your account, the codes do not mean the same thing for everyone and they do not necessarily reflect how any of these actions do or do not impact the amount or timing of your refund. IRS transcripts are best and most often used to validate past income and tax filing status for mortgage, student and small business loan applications and to help with tax preparation.

What is happening when Where’s My Refund? shows the status of my refund is:  Refund Approved?
This means the IRS has processed your return and your refund has been approved. The IRS is now preparing to send your refund to your bank or directly to you in the mail if you requested a paper check. This status will tell you when your refund is scheduled to be sent to your bank and, if you elected the direct deposit option, a date by which it should be credited to your account. Please wait until it’s been five days from the date we sent the refund to your bank to check with your bank about the status of your refund. This time frame is provided to allow for the variations in how and when banks deposit funds.

What is happening when Where’s My Refund? shows the status of my tax return is:  Refund Sent?
This means the IRS has sent your refund to your financial institution for direct deposit. This status will tell you when your refund was sent to your bank. It may take your financial institution 1 – 5 days to deposit the funds into your account. Please wait until it’s been five days from the date we sent the refund to your bank to check with your bank about the status of your refund.  This time frame is provided to allow for the variations in how and when banks deposit funds. If you requested a paper check this means your check has been mailed. It could take several weeks for your check to arrive in the mail.

Why is my refund different than the amount reflected on the tax return I filed?
If you owe past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or certain federal nontax debts, such as student loans, all or part of your refund may be used (offset) to pay the past-due amount. Offsets for federal taxes are made by the IRS. All other offsets are made by the Treasury Department's Bureau of Fiscal Services (BFS) (Formerly the Financial Management Service or FMS). For federal tax offsets, you will receive a notice from the IRS. For all other offsets, you will receive a notice from BFS. To find out if you may have an offset or if you have any questions about it, contact the agency to which you owe the debt. See Tax Topic 203 for more information about refund offsets.

Another reason your refund amount may be different is if we made changes to your tax return that changed your refund amount. In this case you will get a notice in the mail from us explaining the changes. These reasons will be reflected in Where’s My Refund if they apply to your refund.

What if I am counting on my refund for something important? Can I expect to receive it on time? 
Be careful not to count on getting your refund by a certain date to make major purchases or pay other financial obligations. Many different factors can affect the timing of your refund after we receive it for processing. Even though we issue most refunds in less than 21 days, it’s possible your tax return may require additional review and take longer. Also, if you are anticipating a refund, take into consideration the time it takes for your financial institution to post the refund to your account, or for mail delivery.

It's been longer than 21 days since the IRS received my return and I have not gotten my refund. Why?
We work hard to issue refunds as quickly as possible, but some tax returns take longer to process than others for many reasons, including when a return:

  • includes errors,
  • is incomplete,
  • needs further review,
  • is impacted by identity theft or fraud,
  • includes Form 8379, Injured Spouse Allocation, which could take up to 14 weeks to process.

If we need more information to process your tax return, we will contact you by mail.

IRS representatives can only research the status of your return if it’s been 21 days or more since you filed electronically, more than six weeks since you mailed your paper return, or if Where’s My Refund? directs you to contact us. Our general telephone number is 1-800-829-1040. However, given our limited resources, our phone lines are going to be extremely busy this year – and there will frequently be extensive wait times.

Will Where’s My Refund? provide a refund status if I filed an amended return?
No, it does not provide information about amended tax returns. However you can check the status of your Form 1040X (PDF), Amended U.S. Individual Income Tax Return, using the “Where's My Amended Return?” (WMAR) online tool and the new toll-free telephone line 866-464-2050 three weeks after you file your amended return. WMAR provides personalized, automated, and the most up-to-date information on the status of amended returns in both English and Spanish. You can check the status of a Form 1040X filed for the current year and up to three years prior.

 

Page Last Reviewed or Updated: 19-Mar-2014

The 2011 Ez Form

2011 ez form Publication 537 - Main Content Table of Contents What Is an Installment Sale?Special rule. 2011 ez form General RulesFiguring Installment Sale Income Reporting Installment Sale Income Other RulesElecting Out of the Installment Method Payments Received or Considered Received Escrow Account Depreciation Recapture Income Sale to a Related Person Like-Kind Exchange Contingent Payment Sale Single Sale of Several Assets Sale of a Business Unstated Interest and Original Issue Discount (OID) Disposition of an Installment Obligation Repossession Interest on Deferred Tax Reporting an Installment SaleRelated person. 2011 ez form Several assets. 2011 ez form Special situations. 2011 ez form Schedule D (Form 1040). 2011 ez form Form 4797. 2011 ez form How To Get Tax Help What Is an Installment Sale? An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. 2011 ez form The rules for installment sales do not apply if you elect not to use the installment method (see Electing Out of the Installment Method under Other Rules, later) or the transaction is one for which the installment method may not apply. 2011 ez form The installment sales method cannot be used for the following. 2011 ez form Sale of inventory. 2011 ez form   The regular sale of inventory of personal property does not qualify as an installment sale even if you receive a payment after the year of sale. 2011 ez form See Sale of a Business under Other Rules, later. 2011 ez form Dealer sales. 2011 ez form   Sales of personal property by a person who regularly sells or otherwise disposes of the same type of personal property on the installment plan are not installment sales. 2011 ez form This rule also applies to real property held for sale to customers in the ordinary course of a trade or business. 2011 ez form However, the rule does not apply to an installment sale of property used or produced in farming. 2011 ez form Special rule. 2011 ez form   Dealers of time-shares and residential lots can treat certain sales as installment sales and report them under the installment method if they elect to pay a special interest charge. 2011 ez form For more information, see section 453(l). 2011 ez form Stock or securities. 2011 ez form   You cannot use the installment method to report gain from the sale of stock or securities traded on an established securities market. 2011 ez form You must report the entire gain on the sale in the year in which the trade date falls. 2011 ez form Installment obligation. 2011 ez form   The buyer's obligation to make future payments to you can be in the form of a deed of trust, note, land contract, mortgage, or other evidence of the buyer's debt to you. 2011 ez form General Rules If a sale qualifies as an installment sale, the gain must be reported under the installment method unless you elect out of using the installment method. 2011 ez form See Electing Out of the Installment Method under Other Rules, later, for information on recognizing the entire gain in the year of sale. 2011 ez form Sale at a loss. 2011 ez form   If your sale results in a loss, you cannot use the installment method. 2011 ez form If the loss is on an installment sale of business or investment property, you can deduct it only in the tax year of sale. 2011 ez form Unstated interest. 2011 ez form   If your sale calls for payments in a later year and the sales contract provides for little or no interest, you may have to figure unstated interest, even if you have a loss. 2011 ez form See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. 2011 ez form Figuring Installment Sale Income You can use the following discussions or Form 6252 to help you determine gross profit, contract price, gross profit percentage, and installment sale income. 2011 ez form Each payment on an installment sale usually consists of the following three parts. 2011 ez form Interest income. 2011 ez form Return of your adjusted basis in the property. 2011 ez form Gain on the sale. 2011 ez form In each year you receive a payment, you must include in income both the interest part and the part that is your gain on the sale. 2011 ez form You do not include in income the part that is the return of your basis in the property. 2011 ez form Basis is the amount of your investment in the property for installment sale purposes. 2011 ez form Interest Income You must report interest as ordinary income. 2011 ez form Interest is generally not included in a down payment. 2011 ez form However, you may have to treat part of each later payment as interest, even if it is not called interest in your agreement with the buyer. 2011 ez form Interest provided in the agreement is called stated interest. 2011 ez form If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. 2011 ez form See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. 2011 ez form Adjusted Basis and Installment Sale Income (Gain on Sale) After you have determined how much of each payment to treat as interest, you treat the rest of each payment as if it were made up of two parts. 2011 ez form A tax-free return of your adjusted basis in the property, and Your gain (referred to as installment sale income on Form 6252). 2011 ez form Figuring adjusted basis for installment sale purposes. 2011 ez form   You can use Worksheet A to figure your adjusted basis in the property for installment sale purposes. 2011 ez form When you have completed the worksheet, you will also have determined the gross profit percentage necessary to figure your installment sale income (gain) for this year. 2011 ez form Worksheet A. 2011 ez form Figuring Adjusted Basis and Gross Profit Percentage 1. 2011 ez form Enter the selling price for the property   2. 2011 ez form Enter your adjusted basis for the property     3. 2011 ez form Enter your selling expenses     4. 2011 ez form Enter any depreciation recapture     5. 2011 ez form Add lines 2, 3, and 4. 2011 ez form  This is your adjusted basis for installment sale purposes   6. 2011 ez form Subtract line 5 from line 1. 2011 ez form If zero or less, enter -0-. 2011 ez form  This is your gross profit     If the amount entered on line 6 is zero, stop here. 2011 ez form You cannot use the installment method. 2011 ez form   7. 2011 ez form Enter the contract price for the property   8. 2011 ez form Divide line 6 by line 7. 2011 ez form This is your gross profit percentage   Selling price. 2011 ez form   The selling price is the total cost of the property to the buyer and includes any of the following. 2011 ez form Any money you are to receive. 2011 ez form The fair market value (FMV) of any property you are to receive (FMV is discussed in Property Used As a Payment under Other Rules, later). 2011 ez form Any existing mortgage or other debt the buyer pays, assumes, or takes (a note, mortgage, or any other liability, such as a lien, accrued interest, or taxes you owe on the property). 2011 ez form Any of your selling expenses the buyer pays. 2011 ez form   Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. 2011 ez form Adjusted basis for installment sale purposes. 2011 ez form   Your adjusted basis is the total of the following three items. 2011 ez form Adjusted basis. 2011 ez form Selling expenses. 2011 ez form Depreciation recapture. 2011 ez form Adjusted basis. 2011 ez form   Basis is your investment in the property for installment sale purposes. 2011 ez form The way you figure basis depends on how you acquire the property. 2011 ez form The basis of property you buy is generally its cost. 2011 ez form The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. 2011 ez form   While you own property, various events may change your original basis. 2011 ez form Some events, such as adding rooms or making permanent improvements, increase basis. 2011 ez form Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. 2011 ez form The result is adjusted basis. 2011 ez form   For more information on how to figure basis and adjusted basis, see Publication 551. 2011 ez form For more information regarding your basis in property you inherited from someone who died in 2010 and whose executor filed Form 8939, Allocation of Increase In Basis for Property Acquired From a Decedent, see Publication 4895. 2011 ez form Selling expenses. 2011 ez form   Selling expenses relate to the sale of the property. 2011 ez form They include commissions, attorney fees, and any other expenses paid on the sale. 2011 ez form Selling expenses are added to the basis of the sold property. 2011 ez form Depreciation recapture. 2011 ez form   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. 2011 ez form See Depreciation Recapture Income under Other Rules, later. 2011 ez form Gross profit. 2011 ez form   Gross profit is the total gain you report on the installment method. 2011 ez form   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. 2011 ez form If the property you sold was your home, subtract from the gross profit any gain you can exclude. 2011 ez form See Sale of Your Home , later, under Reporting Installment Sale Income. 2011 ez form Contract price. 2011 ez form   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. 2011 ez form Gross profit percentage. 2011 ez form   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. 2011 ez form This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. 2011 ez form   The gross profit percentage generally remains the same for each payment you receive. 2011 ez form However, see the Example under Selling Price Reduced, later, for a situation where the gross profit percentage changes. 2011 ez form Example. 2011 ez form You sell property at a contract price of $6,000 and your gross profit is $1,500. 2011 ez form Your gross profit percentage is 25% ($1,500 ÷ $6,000). 2011 ez form After subtracting interest, you report 25% of each payment, including the down payment, as installment sale income from the sale for the tax year you receive the payment. 2011 ez form The remainder (balance) of each payment is the tax-free return of your adjusted basis. 2011 ez form Amount to report as installment sale income. 2011 ez form   Multiply the payments you receive each year (less interest) by the gross profit percentage. 2011 ez form The result is your installment sale income for the tax year. 2011 ez form In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. 2011 ez form A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. 2011 ez form For a detailed discussion, see Payments Received or Considered Received under Other Rules, later. 2011 ez form Selling Price Reduced If the selling price is reduced at a later date, the gross profit on the sale also will change. 2011 ez form You then must refigure the gross profit percentage for the remaining payments. 2011 ez form Refigure your gross profit using Worksheet B. 2011 ez form You will spread any remaining gain over future installments. 2011 ez form Worksheet B. 2011 ez form New Gross Profit Percentage — Selling Price Reduced 1. 2011 ez form Enter the reduced selling  price for the property   2. 2011 ez form Enter your adjusted  basis for the  property     3. 2011 ez form Enter your selling  expenses     4. 2011 ez form Enter any depreciation  recapture     5. 2011 ez form Add lines 2, 3, and 4. 2011 ez form   6. 2011 ez form Subtract line 5 from line 1. 2011 ez form  This is your adjusted  gross profit   7. 2011 ez form Enter any installment sale  income reported in  prior year(s)   8. 2011 ez form Subtract line 7 from line 6   9. 2011 ez form Future installments   10. 2011 ez form Divide line 8 by line 9. 2011 ez form  This is your new gross profit percentage*   * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. 2011 ez form Example. 2011 ez form In 2011, you sold land with a basis of $40,000 for $100,000. 2011 ez form Your gross profit was $60,000. 2011 ez form You received a $20,000 down payment and the buyer's note for $80,000. 2011 ez form The note provides for four annual payments of $20,000 each, plus 8% interest, beginning in 2012. 2011 ez form Your gross profit percentage is 60%. 2011 ez form You reported a gain of $12,000 on each payment received in 2011 and 2012. 2011 ez form In 2013, you and the buyer agreed to reduce the purchase price to $85,000 and payments during 2013, 2014, and 2015 are reduced to $15,000 for each year. 2011 ez form The new gross profit percentage, 46. 2011 ez form 67%, is figured on Example—Worksheet B. 2011 ez form You will report a gain of $7,000 (46. 2011 ez form 67% of $15,000) on each of the $15,000 installments due in 2013, 2014, and 2015. 2011 ez form Example — Worksheet B. 2011 ez form New Gross Profit Percentage — Selling Price Reduced 1. 2011 ez form Enter the reduced selling  price for the property 85,000 2. 2011 ez form Enter your adjusted  basis for the  property 40,000   3. 2011 ez form Enter your selling  expenses -0-   4. 2011 ez form Enter any depreciation  recapture -0-   5. 2011 ez form Add lines 2, 3, and 4. 2011 ez form 40,000 6. 2011 ez form Subtract line 5 from line 1. 2011 ez form  This is your adjusted  gross profit 45,000 7. 2011 ez form Enter any installment sale  income reported in  prior year(s) 24,000 8. 2011 ez form Subtract line 7 from line 6 21,000 9. 2011 ez form Future installments 45,000 10. 2011 ez form Divide line 8 by line 9. 2011 ez form  This is your new gross profit percentage* 46. 2011 ez form 67% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. 2011 ez form Reporting Installment Sale Income Generally, you will use Form 6252 to report installment sale income from casual sales of real or personal property during the tax year. 2011 ez form You also will have to report the installment sale income on Schedule D (Form 1040), Capital Gains and Losses, or Form 4797, or both. 2011 ez form See Schedule D (Form 1040) and Form 4797 , later. 2011 ez form If the property was your main home, you may be able to exclude part or all of the gain. 2011 ez form See Sale of Your Home , later. 2011 ez form Form 6252 Use Form 6252 to report an installment sale in the year it takes place and to report payments received, or considered received because of related party resales, in later years. 2011 ez form Attach it to your tax return for each year. 2011 ez form Form 6252 will help you determine the gross profit, contract price, gross profit percentage, and installment sale income. 2011 ez form Which parts to complete. 2011 ez form   Which part to complete depends on whether you are filing the form for the year of sale or a later year. 2011 ez form Year of sale. 2011 ez form   Complete lines 1 through 4, Part I, and Part II. 2011 ez form If you sold property to a related party during the year, also complete Part III. 2011 ez form Later years. 2011 ez form   Complete lines 1 through 4 and Part II for any year in which you receive a payment from an installment sale. 2011 ez form   If you sold a marketable security to a related party after May 14, 1980, and before January 1, 1987, complete Form 6252 for each year of the installment agreement, even if you did not receive a payment. 2011 ez form (After December 31, 1986, the installment method is not available for the sale of marketable securities. 2011 ez form ) Complete lines 1 through 4 and Part II for any year in which you receive a payment from the sale. 2011 ez form Complete Part III unless you received the final payment during the tax year. 2011 ez form   If you sold property other than a marketable security to a related party after May 14, 1980, complete Form 6252 for the year of sale and for 2 years after the year of sale, even if you did not receive a payment. 2011 ez form Complete lines 1 through 4 and Part II for any year during this 2-year period in which you receive a payment from the sale. 2011 ez form Complete Part III for the 2 years after the year of sale unless you received the final payment during the tax year. 2011 ez form Schedule D (Form 1040) Enter the gain figured on Form 6252 (line 26) for personal-use property (capital assets) on Schedule D (Form 1040), as a short-term gain (line 4) or long-term gain (line 11). 2011 ez form If your gain from the installment sale qualifies for long-term capital gain treatment in the year of sale, it will continue to qualify in later tax years. 2011 ez form Your gain is long-term if you owned the property for more than 1 year when you sold it. 2011 ez form Form 4797 An installment sale of property used in your business or that earns rent or royalty income may result in a capital gain, an ordinary gain, or both. 2011 ez form All or part of any gain from the disposition of the property may be ordinary gain from depreciation recapture. 2011 ez form For trade or business property held for more than 1 year, enter the amount from line 26 of Form 6252 on Form 4797, line 4. 2011 ez form If the property was held 1 year or less or you have an ordinary gain from the sale of a noncapital asset (even if the holding period is more than 1 year), enter this amount on Form 4797, line 10, and write “From Form 6252. 2011 ez form ” Sale of Your Home If you sell your home, you may be able to exclude all or part of the gain on the sale. 2011 ez form See Publication 523 for information about excluding the gain. 2011 ez form If the sale is an installment sale, any gain you exclude is not included in gross profit when figuring your gross profit percentage. 2011 ez form Seller-financed mortgage. 2011 ez form   If you finance the sale of your home to an individual, both you and the buyer may have to follow special reporting procedures. 2011 ez form   When you report interest income received from a buyer who uses the property as a personal residence, write the buyer's name, address, and social security number (SSN) on line 1 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. 2011 ez form   When deducting the mortgage interest, the buyer must write your name, address, and SSN on line 11 of Schedule A (Form 1040), Itemized Deductions. 2011 ez form   If either person fails to include the other person's SSN, a $50 penalty will be assessed. 2011 ez form Other Rules The rules discussed in this part of the publication apply only in certain circumstances or to certain types of property. 2011 ez form The following topics are discussed. 2011 ez form Electing out of the installment method. 2011 ez form Payments received or considered received. 2011 ez form Escrow account. 2011 ez form Depreciation recapture income. 2011 ez form Sale to a related person. 2011 ez form Like-kind exchange. 2011 ez form Contingent payment sale. 2011 ez form Single sale of several assets. 2011 ez form Sale of a business. 2011 ez form Unstated interest and original issue discount. 2011 ez form Disposition of an installment obligation. 2011 ez form Repossession. 2011 ez form Interest on deferred tax. 2011 ez form Electing Out of the Installment Method If you elect not to use the installment method, you generally report the entire gain in the year of sale, even though you do not receive all the sale proceeds in that year. 2011 ez form To figure the amount of gain to report, use the fair market value (FMV) of the buyer's installment obligation that represents the buyer's debt to you. 2011 ez form Notes, mortgages, and land contracts are examples of obligations that are included at FMV. 2011 ez form You must figure the FMV of the buyer's installment obligation, whether or not you would actually be able to sell it. 2011 ez form If you use the cash method of accounting, the FMV of the obligation will never be considered to be less than the FMV of the property sold (minus any other consideration received). 2011 ez form Example. 2011 ez form You sold a parcel of land for $50,000. 2011 ez form You received a $10,000 down payment and will receive the balance over the next 10 years at $4,000 a year, plus 8% interest. 2011 ez form The buyer gave you a note for $40,000. 2011 ez form The note had an FMV of $40,000. 2011 ez form You paid a commission of 6%, or $3,000, to a broker for negotiating the sale. 2011 ez form The land cost $25,000, and you owned it for more than one year. 2011 ez form You decide to elect out of the installment method and report the entire gain in the year of sale. 2011 ez form Gain realized:     Selling price $50,000 Minus: Property's adj. 2011 ez form basis $25,000     Commission 3,000 28,000 Gain realized $22,000 Gain recognized in year of sale:   Cash $10,000 Market value of note 40,000 Total realized in year of sale $50,000 Minus: Property's adj. 2011 ez form basis $25,000     Commission 3,000 28,000 Gain recognized $22,000 The recognized gain of $22,000 is long-term capital gain. 2011 ez form You include the entire gain in income in the year of sale, so you do not include in income any principal payments you receive in later tax years. 2011 ez form The interest on the note is ordinary income and is reported as interest income each year. 2011 ez form How to elect out. 2011 ez form   To make this election, do not report your sale on Form 6252. 2011 ez form Instead, report it on Form 8949, Sales and Other Dispositions of Capital Assets, Form 4797, or both. 2011 ez form When to elect out. 2011 ez form   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. 2011 ez form Automatic six-month extension. 2011 ez form   If you timely file your tax return without making the election, you still can make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). 2011 ez form Write “Filed pursuant to section 301. 2011 ez form 9100-2” at the top of the amended return and file it where the original return was filed. 2011 ez form Revoking the election. 2011 ez form   Once made, the election can be revoked only with IRS approval. 2011 ez form A revocation is retroactive. 2011 ez form You will not be allowed to revoke the election if either of the following applies. 2011 ez form One of the purposes is to avoid federal income tax. 2011 ez form The tax year in which any payment was received has closed. 2011 ez form Payments Received or Considered Received You must figure your gain each year on the payments you receive, or are treated as receiving, from an installment sale. 2011 ez form In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. 2011 ez form These situations occur when the buyer assumes or pays any of your debts, such as a loan, or pays any of your expenses, such as a sales commission. 2011 ez form However, as discussed later, the buyer's assumption of your debt is treated as a recovery of your basis rather than as a payment in many cases. 2011 ez form Buyer Pays Seller's Expenses If the buyer pays any of your expenses related to the sale of your property, it is considered a payment to you in the year of sale. 2011 ez form Include these expenses in the selling and contract prices when figuring the gross profit percentage. 2011 ez form Buyer Assumes Mortgage If the buyer assumes or pays off your mortgage, or otherwise takes the property subject to the mortgage, the following rules apply. 2011 ez form Mortgage not more than basis. 2011 ez form   If the buyer assumes a mortgage that is not more than your installment sale basis in the property, it is not considered a payment to you. 2011 ez form It is considered a recovery of your basis. 2011 ez form The contract price is the selling price minus the mortgage. 2011 ez form Example. 2011 ez form You sell property with an adjusted basis of $19,000. 2011 ez form You have selling expenses of $1,000. 2011 ez form The buyer assumes your existing mortgage of $15,000 and agrees to pay you $10,000 (a cash down payment of $2,000 and $2,000 (plus 12% interest) in each of the next 4 years). 2011 ez form The selling price is $25,000 ($15,000 + $10,000). 2011 ez form Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). 2011 ez form The contract price is $10,000 ($25,000 − $15,000 mortgage). 2011 ez form Your gross profit percentage is 50% ($5,000 ÷ $10,000). 2011 ez form You report half of each $2,000 payment received as gain from the sale. 2011 ez form You also report all interest you receive as ordinary income. 2011 ez form Mortgage more than basis. 2011 ez form   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. 2011 ez form The part of the mortgage greater than your basis is treated as a payment received in the year of sale. 2011 ez form   To figure the contract price, subtract the mortgage from the selling price. 2011 ez form This is the total amount (other than interest) you will receive directly from the buyer. 2011 ez form Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). 2011 ez form The contract price is then the same as your gross profit from the sale. 2011 ez form    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. 2011 ez form Example. 2011 ez form The selling price for your property is $9,000. 2011 ez form The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. 2011 ez form Your adjusted basis in the property is $4,400. 2011 ez form You have selling expenses of $600, for a total installment sale basis of $5,000. 2011 ez form The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). 2011 ez form This amount is included in the contract price and treated as a payment received in the year of sale. 2011 ez form The contract price is $4,000: Selling price $9,000 Minus: Mortgage (6,000) Amount actually received $3,000 Add difference:   Mortgage $6,000   Minus: Installment sale basis 5,000 1,000 Contract price $4,000       Your gross profit on the sale is also $4,000: Selling price $9,000 Minus: Installment sale basis (5,000) Gross profit $4,000 Your gross profit percentage is 100%. 2011 ez form Report 100% of each payment (less interest) as gain from the sale. 2011 ez form Treat the $1,000 difference between the mortgage and your installment sale basis as a payment and report 100% of it as gain in the year of sale. 2011 ez form Mortgage Canceled If the buyer of your property is the person who holds the mortgage on it, your debt is canceled, not assumed. 2011 ez form You are considered to receive a payment equal to the outstanding canceled debt. 2011 ez form Example. 2011 ez form Mary Jones loaned you $45,000 in 2009 in exchange for a note and a mortgage in a tract of land you owned. 2011 ez form On April 4, 2013, she bought the land for $70,000. 2011 ez form At that time, $30,000 of her loan to you was outstanding. 2011 ez form She agreed to forgive this $30,000 debt and to pay you $20,000 (plus interest) on August 1, 2013, and $20,000 on August 1, 2014. 2011 ez form She did not assume an existing mortgage. 2011 ez form She canceled the $30,000 debt you owed her. 2011 ez form You are considered to have received a $30,000 payment at the time of the sale. 2011 ez form Buyer Assumes Other Debts If the buyer assumes any other debts, such as a loan or back taxes, it may be considered a payment to you in the year of sale. 2011 ez form If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. 2011 ez form Compare the debt to your installment sale basis in the property being sold. 2011 ez form If the debt is less than your installment sale basis, none of it is treated as a payment. 2011 ez form If it is more, only the difference is treated as a payment. 2011 ez form If the buyer assumes more than one debt, any part of the total that is more than your installment sale basis is considered a payment. 2011 ez form These rules are the same as the rules discussed earlier under Buyer Assumes Mortgage . 2011 ez form However, they apply only to the following types of debt the buyer assumes. 2011 ez form Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. 2011 ez form Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. 2011 ez form If the buyer assumes any other type of debt, such as a personal loan or your legal fees relating to the sale, it is treated as if the buyer had paid off the debt at the time of the sale. 2011 ez form The value of the assumed debt is then considered a payment to you in the year of sale. 2011 ez form Property Used As a Payment If you receive property other than money from the buyer, it is still considered a payment in the year received. 2011 ez form However, see Like-Kind Exchange , later. 2011 ez form Generally, the amount of the payment is the property's FMV on the date you receive it. 2011 ez form Exception. 2011 ez form   If the property the buyer gives you is payable on demand or readily tradable, the amount you should consider as payment in the year received is: The FMV of the property on the date you receive it if you use the cash method of accounting, The face amount of the obligation on the date you receive it if you use the accrual method of accounting, or The stated redemption price at maturity less any original issue discount (OID) or, if there is no OID, the stated redemption price at maturity appropriately discounted to reflect total unstated interest. 2011 ez form See Unstated Interest and Original Issue Discount (OID) , later. 2011 ez form Debt not payable on demand. 2011 ez form   Any evidence of debt you receive from the buyer not payable on demand is not considered a payment. 2011 ez form This is true even if the debt is guaranteed by a third party, including a government agency. 2011 ez form Fair market value (FMV). 2011 ez form   This is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having a reasonable knowledge of all the necessary facts. 2011 ez form Third-party note. 2011 ez form   If the property the buyer gives you is a third-party note (or other obligation of a third party), you are considered to have received a payment equal to the note's FMV. 2011 ez form Because the FMV of the note is itself a payment on your installment sale, any payments you later receive from the third party are not considered payments on the sale. 2011 ez form The excess of the note's face value over its FMV is interest. 2011 ez form Exclude this interest in determining the selling price of the property. 2011 ez form However, see Exception under Property Used As a Payment, earlier. 2011 ez form Example. 2011 ez form You sold real estate in an installment sale. 2011 ez form As part of the down payment, the buyer assigned to you a $50,000, 8% interest third-party note. 2011 ez form The FMV of the third-party note at the time of the sale was $30,000. 2011 ez form This amount, not $50,000, is a payment to you in the year of sale. 2011 ez form The third-party note had an FMV equal to 60% of its face value ($30,000 ÷ $50,000), so 60% of each principal payment you receive on this note is a nontaxable return of capital. 2011 ez form The remaining 40% is interest taxed as ordinary income. 2011 ez form Bond. 2011 ez form   A bond or other evidence of debt you receive from the buyer that is payable on demand or readily tradable in an established securities market is treated as a payment in the year you receive it. 2011 ez form For more information on the amount you should treat as a payment, see Exception under Property Used As a Payment, earlier. 2011 ez form    If you receive a government or corporate bond for a sale before October 22, 2004, and the bond has interest coupons attached or can be readily traded in an established securities market, you are considered to have received payment equal to the bond's FMV. 2011 ez form However, see Exception under Property Used As a Payment, earlier. 2011 ez form Buyer's note. 2011 ez form   The buyer's note (unless payable on demand) is not considered payment on the sale. 2011 ez form However, its full face value is included when figuring the selling price and the contract price. 2011 ez form Payments you receive on the note are used to figure your gain in the year received. 2011 ez form Installment Obligation Used as Security (Pledge Rule) If you use an installment obligation to secure any debt, the net proceeds from the debt may be treated as a payment on the installment obligation. 2011 ez form This is known as the pledge rule, and it applies if the selling price of the property is over $150,000. 2011 ez form It does not apply to the following dispositions. 2011 ez form Sales of property used or produced in farming. 2011 ez form Sales of personal-use property. 2011 ez form Qualifying sales of time-shares and residential lots. 2011 ez form The net debt proceeds are the gross debt minus the direct expenses of getting the debt. 2011 ez form The amount treated as a payment is considered received on the later of the following dates. 2011 ez form The date the debt becomes secured. 2011 ez form The date you receive the debt proceeds. 2011 ez form A debt is secured by an installment obligation to the extent that payment of principal or interest on the debt is directly secured (under the terms of the loan or any underlying arrangement) by any interest in the installment obligation. 2011 ez form For sales after December 16, 1999, payment on a debt is treated as directly secured by an interest in an installment obligation to the extent an arrangement allows you to satisfy all or part of the debt with the installment obligation. 2011 ez form Limit. 2011 ez form   The net debt proceeds treated as a payment on the pledged installment obligation cannot be more than the excess of item (1) over item (2), below. 2011 ez form The total contract price on the installment sale. 2011 ez form Any payments received on the installment obligation before the date the net debt proceeds are treated as a payment. 2011 ez form Installment payments. 2011 ez form   The pledge rule accelerates the reporting of the installment obligation payments. 2011 ez form Do not report payments received on the obligation after it has been pledged until the payments received exceed the amount reported under the pledge rule. 2011 ez form Exception. 2011 ez form   The pledge rule does not apply to pledges made after December 17, 1987, to refinance a debt under the following circumstances. 2011 ez form The debt was outstanding on December 17, 1987. 2011 ez form The debt was secured by that installment sale obligation on that date and at all times thereafter until the refinancing occurred. 2011 ez form   A refinancing as a result of the creditor's calling of the debt is treated as a continuation of the original debt so long as a person other than the creditor or a person related to the creditor provides the refinancing. 2011 ez form   This exception applies only to refinancing that does not exceed the principal of the original debt immediately before the refinancing. 2011 ez form Any excess is treated as a payment on the installment obligation. 2011 ez form Escrow Account In some cases, the sales agreement or a later agreement may call for the buyer to establish an irrevocable escrow account from which the remaining installment payments (including interest) are to be made. 2011 ez form These sales cannot be reported on the installment method. 2011 ez form The buyer's obligation is paid in full when the balance of the purchase price is deposited into the escrow account. 2011 ez form When an escrow account is established, you no longer rely on the buyer for the rest of the payments, but on the escrow arrangement. 2011 ez form Example. 2011 ez form You sell property for $100,000. 2011 ez form The sales agreement calls for a down payment of $10,000 and payment of $15,000 in each of the next 6 years to be made from an irrevocable escrow account containing the balance of the purchase price plus interest. 2011 ez form You cannot report the sale on the installment method because the full purchase price is considered received in the year of sale. 2011 ez form You report the entire gain in the year of sale. 2011 ez form Escrow established in a later year. 2011 ez form   If you make an installment sale and in a later year an irrevocable escrow account is established to pay the remaining installments plus interest, the amount placed in the escrow account represents payment of the balance of the installment obligation. 2011 ez form Substantial restriction. 2011 ez form   If an escrow arrangement imposes a substantial restriction on your right to receive the sale proceeds, the sale can be reported on the installment method, provided it otherwise qualifies. 2011 ez form For an escrow arrangement to impose a substantial restriction, it must serve a bona fide purpose of the buyer, that is, a real and definite restriction placed on the seller or a specific economic benefit conferred on the buyer. 2011 ez form Depreciation Recapture Income If you sell property for which you claimed or could have claimed a depreciation deduction, you must report any depreciation recapture income in the year of sale, whether or not an installment payment was received that year. 2011 ez form Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. 2011 ez form Report the recapture income in Part II of Form 4797 as ordinary income in the year of sale. 2011 ez form The recapture income is also included in Part I of Form 6252. 2011 ez form However, the gain equal to the recapture income is reported in full in the year of the sale. 2011 ez form Only the gain greater than the recapture income is reported on the installment method. 2011 ez form For more information on depreciation recapture, see chapter 3 in Publication 544. 2011 ez form The recapture income reported in the year of sale is included in your installment sale basis in determining your gross profit on the installment sale. 2011 ez form Determining gross profit is discussed under General Rules , earlier. 2011 ez form Sale to a Related Person If you sell depreciable property to a related person and the sale is an installment sale, you may not be able to report the sale using the installment method. 2011 ez form If you sell property to a related person and the related person disposes of the property before you receive all payments with respect to the sale, you may have to treat the amount realized by the related person as received by you when the related person disposes of the property. 2011 ez form These rules are explained under Sale of Depreciable Property and under Sale and Later Disposition , later. 2011 ez form Sale of Depreciable Property If you sell depreciable property to certain related persons, you generally cannot report the sale using the installment method. 2011 ez form Instead, all payments to be received are considered received in the year of sale. 2011 ez form However, see Exception , below. 2011 ez form Depreciable property for this rule is any property the purchaser can depreciate. 2011 ez form Payments to be received include the total of all noncontingent payments and the FMV of any payments contingent as to amount. 2011 ez form In the case of contingent payments for which the FMV cannot be reasonably determined, your basis in the property is recovered proportionately. 2011 ez form The purchaser cannot increase the basis of the property acquired in the sale before the seller includes a like amount in income. 2011 ez form Exception. 2011 ez form   You can use the installment method to report a sale of depreciable property to a related person if no significant tax deferral benefit will be derived from the sale. 2011 ez form You must show to the satisfaction of the IRS that avoidance of federal income tax was not one of the principal purposes of the sale. 2011 ez form Related person. 2011 ez form   Related persons include the following. 2011 ez form A person and all controlled entities with respect to that person. 2011 ez form A taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless that beneficiary's interest in the trust is a remote contingent interest. 2011 ez form Except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of that estate. 2011 ez form Two or more partnerships in which the same person owns, directly or indirectly, more than 50% of the capital interests or the profits interests. 2011 ez form   For information about which entities are controlled entities, see section 1239(c). 2011 ez form Sale and Later Disposition Generally, a special rule applies if you sell or exchange property to a related person on the installment method (first disposition) who then sells, exchanges, or gives away the property (second disposition) under the following circumstances. 2011 ez form The related person makes the second disposition before making all payments on the first disposition. 2011 ez form The related person disposes of the property within 2 years of the first disposition. 2011 ez form This rule does not apply if the property involved is marketable securities. 2011 ez form Under this rule, you treat part or all of the amount the related person realizes (or the FMV if the disposed property is not sold or exchanged) from the second disposition as if you received it at the time of the second disposition. 2011 ez form See Exception , later. 2011 ez form Related person. 2011 ez form   Related persons include the following. 2011 ez form Members of a family, including only brothers and sisters (either whole or half), husband and wife, ancestors, and lineal descendants. 2011 ez form A partnership or estate and a partner or beneficiary. 2011 ez form A trust (other than a section 401(a) employees trust) and a beneficiary. 2011 ez form A trust and an owner of the trust. 2011 ez form Two corporations that are members of the same controlled group as defined in section 267(f). 2011 ez form The fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. 2011 ez form A tax-exempt educational or charitable organization and a person (if an individual, including members of the individual's family) who directly or indirectly controls such an organization. 2011 ez form An individual and a corporation when the individual owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. 2011 ez form A fiduciary of a trust and a corporation when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. 2011 ez form The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. 2011 ez form Any two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. 2011 ez form An S corporation and a corporation that is not an S corporation if the same persons own more than 50% in value of the outstanding stock of each corporation. 2011 ez form A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. 2011 ez form An executor and a beneficiary of an estate unless the sale is in satisfaction of a pecuniary bequest. 2011 ez form Example 1. 2011 ez form In 2012, Harvey Green sold farm land to his son Bob for $500,000, which was to be paid in five equal payments over 5 years, plus adequate stated interest on the balance due. 2011 ez form His installment sale basis for the farm land was $250,000 and the property was not subject to any outstanding liens or mortgages. 2011 ez form His gross profit percentage is 50% (gross profit of $250,000 ÷ contract price of $500,000). 2011 ez form He received $100,000 in 2012 and included $50,000 in income for that year ($100,000 × 0. 2011 ez form 50). 2011 ez form Bob made no improvements to the property and sold it to Alfalfa Inc. 2011 ez form , in 2013 for $600,000 after making the payment for that year. 2011 ez form The amount realized from the second disposition is $600,000. 2011 ez form Harvey figures his installment sale income for 2013 as follows: Lesser of: 1) Amount realized on second disposition, or 2) Contract price on first disposition $500,000 Subtract: Sum of payments from Bob in 2012 and 2013 - 200,000 Amount treated as received because of second disposition $300,000 Add: Payment from Bob in 2013 + 100,000 Total payments received and treated as received for 2013 $400,000 Multiply by gross profit % × . 2011 ez form 50 Installment sale income for 2013 $200,000 Harvey will not include in his installment sale income any principal payments he receives on the installment obligation for 2014, 2015, and 2016 because he has already reported the total payments of $500,000 from the first disposition ($100,000 in 2012 and $400,000 in 2013). 2011 ez form Example 2. 2011 ez form Assume the facts are the same as Example 1 except that Bob sells the property for only $400,000. 2011 ez form The gain for 2013 is figured as follows: Lesser of: 1) Amount realized on second disposition, or 2) Contract price on first disposition $400,000 Subtract: Sum of payments from Bob in 2012 and 2013 − 200,000 Amount treated as received because of second disposition $200,000 Add: Payment from Bob in 2013 + 100,000 Total payments received and treated as received for 2013 $300,000 Multiply by gross profit % × . 2011 ez form 50 Installment sale income for 2013 $150,000     Harvey receives a $100,000 payment in 2014 and another in 2015. 2011 ez form They are not taxed because he treated the $200,000 from the disposition in 2013 as a payment received and paid tax on the installment sale income. 2011 ez form In 2016, he receives the final $100,000 payment. 2011 ez form He figures the installment sale income he must recognize in 2016 as follows: Total payments from the first disposition received by the end of 2016 $500,000 Minus the sum of:     Payment from 2012 $100,000   Payment from 2013 100,000   Amount treated as received in 2013 200,000   Total on which gain was previously recognized  − 400,000 Payment on which gain is recognized for 2016  $100,000 Multiply by gross profit % × . 2011 ez form 50 Installment sale income for 2016 $ 50,000 Exception. 2011 ez form   This rule does not apply to a second disposition, and any later transfer, if you can show to the satisfaction of the IRS that neither the first disposition (to the related person) nor the second disposition had as one of its principal purposes the avoidance of federal income tax. 2011 ez form Generally, an involuntary second disposition will qualify under the nontax avoidance exception, such as when a creditor of the related person forecloses on the property or the related person declares bankruptcy. 2011 ez form   The nontax avoidance exception also applies to a second disposition that is also an installment sale if the terms of payment under the installment resale are substantially equal to or longer than those for the first installment sale. 2011 ez form However, the exception does not apply if the resale terms permit significant deferral of recognition of gain from the first sale. 2011 ez form   In addition, any sale or exchange of stock to the issuing corporation is not treated as a first disposition. 2011 ez form An involuntary conversion is not treated as a second disposition if the first disposition occurred before the threat of conversion. 2011 ez form A transfer after the death of the person making the first disposition or the related person's death, whichever is earlier, is not treated as a second disposition. 2011 ez form Like-Kind Exchange If you trade business or investment property solely for the same kind of property to be held as business or investment property, you can postpone reporting the gain. 2011 ez form These trades are known as like-kind exchanges. 2011 ez form The property you receive in a like-kind exchange is treated as if it were a continuation of the property you gave up. 2011 ez form You do not have to report any part of your gain if you receive only like-kind property. 2011 ez form However, if you also receive money or other property (boot) in the exchange, you must report your gain to the extent of the money and the FMV of the other property received. 2011 ez form For more information on like-kind exchanges, see Like-Kind Exchanges in chapter 1 of Publication 544. 2011 ez form Installment payments. 2011 ez form   If, in addition to like-kind property, you receive an installment obligation in the exchange, the following rules apply to determine the installment sale income each year. 2011 ez form The contract price is reduced by the FMV of the like-kind property received in the trade. 2011 ez form The gross profit is reduced by any gain on the trade that can be postponed. 2011 ez form Like-kind property received in the trade is not considered payment on the installment obligation. 2011 ez form Example. 2011 ez form In 2013, George Brown trades personal property with an installment sale basis of $400,000 for like-kind property having an FMV of $200,000. 2011 ez form He also receives an installment note for $800,000 in the trade. 2011 ez form Under the terms of the note, he is to receive $100,000 (plus interest) in 2014 and the balance of $700,000 (plus interest) in 2015. 2011 ez form George's selling price is $1,000,000 ($800,000 installment note + $200,000 FMV of like-kind property received). 2011 ez form His gross profit is $600,000 ($1,000,000 − $400,000 installment sale basis). 2011 ez form The contract price is $800,000 ($1,000,000 − $200,000). 2011 ez form The gross profit percentage is 75% ($600,000 ÷ $800,000). 2011 ez form He reports no gain in 2013 because the like-kind property he receives is not treated as a payment for figuring gain. 2011 ez form He reports $75,000 gain for 2014 (75% of $100,000 payment received) and $525,000 gain for 2015 (75% of $700,000 payment received). 2011 ez form Deferred exchanges. 2011 ez form   A deferred exchange is one in which you transfer property you use in business or hold for investment and receive like-kind property later that you will use in business or hold for investment. 2011 ez form Under this type of exchange, the person receiving your property may be required to place funds in an escrow account or trust. 2011 ez form If certain rules are met, these funds will not be considered a payment until you have the right to receive the funds or, if earlier, the end of the exchange period. 2011 ez form See Regulations section 1. 2011 ez form 1031(k)-1(j)(2) for these rules. 2011 ez form Contingent Payment Sale A contingent payment sale is one in which the total selling price cannot be determined by the end of the tax year of sale. 2011 ez form This happens, for example, if you sell your business and the selling price includes a percentage of its profits in future years. 2011 ez form If the selling price cannot be determined by the end of the tax year, you must use different rules to figure the contract price and the gross profit percentage than those you use for an installment sale with a fixed selling price. 2011 ez form For rules on using the installment method for a contingent payment sale, see Regulations section 15a. 2011 ez form 453-1(c). 2011 ez form Single Sale of Several Assets If you sell different types of assets in a single sale, you must identify each asset to determine whether you can use the installment method to report the sale of that asset. 2011 ez form You also have to allocate part of the selling price to each asset. 2011 ez form If you sell assets that constitute a trade or business, see Sale of a Business , later. 2011 ez form Unless an allocation of the selling price has been agreed to by both parties in an arm's-length transaction, you must allocate the selling price to an asset based on its FMV. 2011 ez form If the buyer assumes a debt, or takes the property subject to a debt, you must reduce the FMV of the property by the debt. 2011 ez form This becomes the net FMV. 2011 ez form A sale of separate and unrelated assets of the same type under a single contract is reported as one transaction for the installment method. 2011 ez form However, if an asset is sold at a loss, its disposition cannot be reported on the installment method. 2011 ez form It must be reported separately. 2011 ez form The remaining assets sold at a gain are reported together. 2011 ez form Example. 2011 ez form You sold three separate and unrelated parcels of real property (A, B, and C) under a single contract calling for a total selling price of $130,000. 2011 ez form The total selling price consisted of a cash payment of $20,000, the buyer's assumption of a $30,000 mortgage on parcel B, and an installment obligation of $80,000 payable in eight annual installments, plus interest at 8% a year. 2011 ez form Your installment sale basis for each parcel was $15,000. 2011 ez form Your net gain was $85,000 ($130,000 − $45,000). 2011 ez form You report the gain on the installment method. 2011 ez form The sales contract did not allocate the selling price or the cash payment received in the year of sale among the individual parcels. 2011 ez form The FMV of parcels A, B, and C were $60,000, $60,000, and $10,000, respectively. 2011 ez form The installment sale basis for parcel C was more than its FMV, so it was sold at a loss and must be treated separately. 2011 ez form You must allocate the total selling price and the amounts received in the year of sale between parcel C and the remaining parcels. 2011 ez form Of the total $130,000 selling price, you must allocate $120,000 to parcels A and B together and $10,000 to parcel C. 2011 ez form You should allocate the cash payment of $20,000 received in the year of sale and the note receivable on the basis of their proportionate net FMV. 2011 ez form The allocation is figured as follows:   Parcels   A and B Parcel C FMV $120,000 $10,000 Minus: Mortgage assumed 30,000 -0- Net FMV $ 90,000 $10,000 Proportionate net FMV:     Percentage of total 90% 10% Payments in year of sale:     $20,000 × 90% $18,000   $20,000 × 10%   $2,000 Excess of parcel B mortgage over installment sale basis 15,000 -0- Allocation of payments  received (or considered  received) in year of sale $ 33,000 $ 2,000 You cannot report the sale of parcel C on the installment method because the sale results in a loss. 2011 ez form You report this loss of $5,000 ($10,000 selling price − $15,000 installment sale basis) in the year of sale. 2011 ez form However, if parcel C was held for personal use, the loss is not deductible. 2011 ez form You allocate the installment obligation of $80,000 to the properties sold based on their proportionate net FMVs (90% to parcels A and B, 10% to parcel C). 2011 ez form Sale of a Business The installment sale of an entire business for one overall price under a single contract is not the sale of a single asset. 2011 ez form Allocation of Selling Price To determine whether any of the gain on the sale of the business can be reported on the installment method, you must allocate the total selling price and the payments received in the year of sale between each of the following classes of assets. 2011 ez form Assets sold at a loss. 2011 ez form Real and personal property eligible for the installment method. 2011 ez form Real and personal property ineligible for the installment method, including: Inventory, Dealer property, and Stocks and securities. 2011 ez form Inventory. 2011 ez form   The sale of inventories of personal property cannot be reported on the installment method. 2011 ez form All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. 2011 ez form   If inventory items are included in an installment sale, you may have an agreement stating which payments are for inventory and which are for the other assets being sold. 2011 ez form If you do not, each payment must be allocated between the inventory and the other assets sold. 2011 ez form   Report the amount you receive (or will receive) on the sale of inventory items as ordinary business income. 2011 ez form Use your basis in the inventory to figure the cost of goods sold. 2011 ez form Deduct the part of the selling expenses allocated to inventory as an ordinary business expense. 2011 ez form Residual method. 2011 ez form   Except for assets exchanged under the like-kind exchange rules, both the buyer and seller of a business must use the residual method to allocate the sale price to each business asset sold. 2011 ez form This method determines gain or loss from the transfer of each asset and the buyer's basis in the assets. 2011 ez form   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. 2011 ez form This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b). 2011 ez form   A group of assets constitutes a trade or business if goodwill or going concern value could, under any circumstances, attach to the assets or if the use of the assets would constitute an active trade or business under section 355. 2011 ez form   The residual method provides for the consideration to be reduced first by cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). 2011 ez form The consideration remaining after this reduction must be allocated among the various business assets in a certain order. 2011 ez form   For asset acquisitions occurring after March 15, 2001, make the allocation among the following assets in proportion to (but not more than) their fair market value on the purchase date in the following order. 2011 ez form Certificates of deposit, U. 2011 ez form S. 2011 ez form Government securities, foreign currency, and actively traded personal property, including stock and securities. 2011 ez form Accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. 2011 ez form However, see Regulations section 1. 2011 ez form 338-6(b)(2)(iii) for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. 2011 ez form Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. 2011 ez form All other assets except section 197 intangibles. 2011 ez form Section 197 intangibles except goodwill and going concern value. 2011 ez form Goodwill and going concern value (whether or not they qualify as section 197 intangibles). 2011 ez form   If an asset described in (1) through (6) is includible in more than one category, include it in the lower number category. 2011 ez form For example, if an asset is described in both (4) and (6), include it in (4). 2011 ez form Agreement. 2011 ez form   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. 2011 ez form This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. 2011 ez form Reporting requirement. 2011 ez form   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. 2011 ez form Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. 2011 ez form The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. 2011 ez form Sale of Partnership Interest A partner who sells a partnership interest at a gain may be able to report the sale on the installment method. 2011 ez form The sale of a partnership interest is treated as the sale of a single capital asset. 2011 ez form The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary income. 2011 ez form (The term “unrealized receivables” includes depreciation recapture income, discussed earlier. 2011 ez form ) The gain allocated to the unrealized receivables and the inventory cannot be reported under the installment method. 2011 ez form The gain allocated to the other assets can be reported under the installment method. 2011 ez form For more information on the treatment of unrealized receivables and inventory, see Publication 541. 2011 ez form Example — Sale of a Business On June 4, 2013, you sold the machine shop you had operated since 2005. 2011 ez form You received a $100,000 down payment and the buyer's note for $120,000. 2011 ez form The note payments are $15,000 each, plus 10% interest, due every July 1 and January 1, beginning in 2014. 2011 ez form The total selling price is $220,000. 2011 ez form Your selling expenses are $11,000. 2011 ez form The selling expenses are divided among all the assets sold, including inventory. 2011 ez form Your selling expense for each asset is 5% of the asset's selling price ($11,000 selling expense ÷ $220,000 total selling price). 2011 ez form The FMV, adjusted basis, and depreciation claimed on each asset sold are as follows:     Depre- ciation Adj. 2011 ez form Asset FMV Claimed Basis Inventory $ 10,000 -0- $ 8,000 Land 42,000 -0- 15,000 Building 48,000 $9,000 36,000 Machine A 71,000 27,200 63,800 Machine B 24,000 12,960 22,040 Truck 6,500 18,624 5,376   $201,500 $67,784 $150,216         Under the residual method, you allocate the selling price to each of the assets based on their FMV ($201,500). 2011 ez form The remaining $18,500 ($220,000 - $201,500) is allocated to your section 197 intangible, goodwill. 2011 ez form The assets included in the sale, their selling prices based on their FMVs, the selling expense allocated to each asset, the adjusted basis, and the gain for each asset are shown in the following chart. 2011 ez form   Sale  Price Sale   Exp. 2011 ez form Adj. 2011 ez form   Basis Gain Inventory $ 10,000 $ 500 $ 8,000 $ 1,500 Land 42,000 2,100 15,000 24,900 Building 48,000 2,400 36,000 9,600 Mch. 2011 ez form A 71,000 3,550 63,800 3,650 Mch. 2011 ez form B 24,000 1,200 22,040 760 Truck 6,500 325 5,376 799 Goodwill 18,500 925 -0- 17,575   $220,000 $11,000 $150,216 $58,784 The building was acquired in 2005, the year the business began, and it is section 1250 property. 2011 ez form There is no depreciation recapture income because the building was depreciated using the straight line method. 2011 ez form All gain on the truck, machine A, and machine B is depreciation recapture income since it is the lesser of the depreciation claimed or the gain on the sale. 2011 ez form Figure depreciation recapture in Part III of Form 4797. 2011 ez form The total depreciation recapture income reported in Part II of Form 4797 is $5,209. 2011 ez form This consists of $3,650 on machine A, $799 on the truck, and $760 on machine B (the gain on each item because it was less than the depreciation claimed). 2011 ez form These gains are reported in full in the year of sale and are not included in the installment sale computation. 2011 ez form Of the $220,000 total selling price, the $10,000 for inventory assets cannot be reported using the installment method. 2011 ez form The selling prices of the truck and machines are also removed from the total selling price because gain on these items is reported in full in the year of sale. 2011 ez form The selling price equals the contract price for the installment sale ($108,500). 2011 ez form The assets included in the installment sale, their selling price, and their installment sale bases are shown in the following chart. 2011 ez form   Selling  Price Install- ment  Sale  Basis Gross  Profit Land $ 42,000 $17,100 $24,900 Building 48,000 38,400 9,600 Goodwill 18,500 925 17,575 Total $108,500 $56,425 $52,075         The gross profit percentage (gross profit ÷ contract price) for the installment sale is 48% ($52,075 ÷ $108,500). 2011 ez form The gross profit percentage for each asset is figured as follows: Percentage Land— $24,900 ÷ $108,500 22. 2011 ez form 95 Building— $9,600 ÷ $108,500 8. 2011 ez form 85 Goodwill— $17,575 ÷ $108,500 16. 2011 ez form 20 Total 48. 2011 ez form 00 The sale includes assets sold on the installment method and assets for which the gain is reported in full in the year of sale, so payments must be allocated between the installment part of the sale and the part reported in the year of sale. 2011 ez form The selling price for the installment sale is $108,500. 2011 ez form This is 49. 2011 ez form 3% of the total selling price of $220,000 ($108,500 ÷ $220,000). 2011 ez form The selling price of assets not reported on the installment method is $111,500. 2011 ez form This is 50. 2011 ez form 7% ($111,500 ÷ $220,000) of the total selling price. 2011 ez form Multiply principal payments by 49. 2011 ez form 3% to determine the part of the payment for the installment sale. 2011 ez form The balance, 50. 2011 ez form 7%, is for the part reported in the year of the sale. 2011 ez form The gain on the sale of the inventory, machines, and truck is reported in full in the year of sale. 2011 ez form When you receive principal payments in later years, no part of the payment for the sale of these assets is included in gross income. 2011 ez form Only the part for the installment sale (49. 2011 ez form 3%) is used in the installment sale computation. 2011 ez form The only payment received in 2013 is the down payment of $100,000. 2011 ez form The part of the payment for the installment sale is $49,300 ($100,000 × 49. 2011 ez form 3%). 2011 ez form This amount is used in the installment sale computation. 2011 ez form Installment income for 2013. 2011 ez form   Your installment income for each asset is the gross profit percentage for that asset times $49,300, the installment income received in 2013. 2011 ez form Income Land—22. 2011 ez form 95% of $49,300 $11,314 Building—8. 2011 ez form 85% of $49,300 4,363 Goodwill—16. 2011 ez form 2% of $49,300 7,987 Total installment income for 2013 $23,664 Installment income after 2013. 2011 ez form   You figure installment income for years after 2013 by applying the same gross profit percentages to 49. 2011 ez form 3% of the total payments you receive on the buyer's note during the year. 2011 ez form Unstated Interest and Original Issue Discount (OID) An installment sale contract may provide that each deferred payment on the sale will include interest or that there will be an interest payment in addition to the principal payment. 2011 ez form Interest provided in the contract is called stated interest. 2011 ez form If an installment sale contract does not provide for adequate stated interest, part of the stated principal amount of the contract may be recharacterized as interest. 2011 ez form If section 483 applies to the contract, this interest is called unstated interest. 2011 ez form If section 1274 applies to the contract, this interest is called original issue discount (OID). 2011 ez form An installment sale contract does not provide for adequate stated interest if the stated interest rate is lower than the test rate (defined later). 2011 ez form Treatment of unstated interest and OID. 2011 ez form   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. 2011 ez form As a result, the buyer cannot deduct the unstated interest. 2011 ez form The seller must report the unstated interest as income. 2011 ez form   Personal-use property is any property in which substantially all of its use by the buyer is not in connection with a trade or business or an investment activity. 2011 ez form   If the debt is subject to the section 483 rules and is also subject to the below-market loan rules, such as a gift loan, compensation-related loan, or corporation-shareholder loan, then both parties are subject to the below-market loan rules rather than the unstated interest rules. 2011 ez form Rules for the seller. 2011 ez form   If either section 1274 or section 483 applies to the installment sale contract, you must treat part of the installment sale price as interest, even though interest is not called for in the sales agreement. 2011 ez form If either section applies, you must reduce the stated selling price of the property and increase your interest income by this unstated interest. 2011 ez form   Include the unstated interest in income based on your regular method of accounting. 2011 ez form Include OID in income over the term of the contract. 2011 ez form   The OID includible in income each year is based on the constant yield method described in section 1272. 2011 ez form (In some cases, the OID on an installment sale contract also may include all or part of the stated interest, especially if the stated interest is not paid at least annually. 2011 ez form )   If you do not use the installment method to report the sale, report the entire gain under your method of accounting in the year of sale. 2011 ez form Reduce the selling price by any stated principal treated as interest to determine the gain. 2011 ez form   Report unstated interest or OID on your tax return, in addition to stated interest. 2011 ez form Rules for the buyer. 2011 ez form   Any part of the stated selling price of an installment sale contract treated by the buyer as interest reduces the buyer's basis in the property and increases the buyer's interest expense. 2011 ez form These rules do not apply to personal-use property (for example, property not used in a trade or business). 2011 ez form Adequate stated interest. 2011 ez form   An installment sale contract generally provides for adequate stated interest if the contract's stated principal amount is at least equal to the sum of the present values of all principal and interest payments called for under the contract. 2011 ez form The present value of a payment is determined based on the test rate of interest, defined next. 2011 ez form (If section 483 applies to the contract, payments due within six months after the sale are taken into account at face value. 2011 ez form ) In general, an installment sale contract provides for adequate stated interest if the stated interest rate (based on an appropriate compounding period) is at least equal to the test rate of interest. 2011 ez form Test rate of interest. 2011 ez form   The test rate of interest for a contract is the 3-month rate. 2011 ez form The 3-month rate is the lower of the following applicable federal rates (AFRs). 2011 ez form The lowest AFR (based on the appropriate compounding period) in effect during the 3-month period ending with the first month in which there is a binding written contract that substantially provides the terms under which the sale or exchange is ultimately completed. 2011 ez form The lowest AFR (based on the appropriate compounding period) in effect during the 3-month period ending with the month in which the sale or exchange occurs. 2011 ez form Applicable federal rate (AFR). 2011 ez form   The AFR depends on the month the binding