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2011 Tax Return Turbotax

H R Block 1040xIrs 1040ez 2011 FormE File State Taxes1040ez Form2009 Tax Return Forms2010 1040 Tax FormHow To Amend My Taxes OnlineEfileFill Out 1040ez OnlineFiling A 2012 Tax ReturnPrintable 1040ez Tax FormFiling A 1040 Ez1040 Ez1040 Ez TaxesTax Planning Us 1040ez2012 Tax Forms 1040 EzFile 2010 Tax Return OnlineFree Online Tax ReturnIrs Tax FormsFile Income Tax Extension Free1040nr TurbotaxAmend 2011 Tax Return FormTax Questions For Students1040 Form 2012StateincometaxHow To Fill Out 1040xTax Form 1040xFree File For State Income TaxFill Out 1040ez2009 Tax AmendmentH R Block Tax ServiceFree 2011 Tax FilingH&r Block Free Tax ReturnFreetaxusa 20112011 Tax Form 1040Instructions For Form 1040ezAmend Tax FormsTurbo Tax Free State FilingIrs 1040ez 2011Free Tax Filing

2011 Tax Return Turbotax

2011 tax return turbotax Publication 561 - Additional Material Table of Contents Tax Publications for Individual Taxpayers and Commonly Used Tax Forms Tax Publications for Individual Taxpayers and Commonly Used Tax Forms. 2011 tax return turbotax  Summary: This is a listing of tax publications and commonly used tax forms. 2011 tax return turbotax The text states:Tax Publications for Individual Taxpayers. 2011 tax return turbotax  See How to Get Tax Help for a variety of ways to get publications, including by computer, phone, and mail. 2011 tax return turbotax General Guides. 2011 tax return turbotax   1--Your Rights as a Taxpayer 17--Your Federal Income Tax (For Individuals) 334--Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) 509--Tax Calendars for 2007 553--Highlights of 2006 Tax Changes 910--IRS Guide to Free Tax Services Specialized Publications. 2011 tax return turbotax   3--Armed Forces' Tax Guide 54--Tax Guide for U. 2011 tax return turbotax S. 2011 tax return turbotax Citizens and Residents Aliens Abroad 225--Farmer's Tax Guide 463--Travel, Entertainment, Gift, and Car Expenses 501--Exemptions, Standard Deduction, and Filing Information 502--Medical and Dental Expenses 503--Child and Dependent Care Expenses 504--Divorced or Separated Individuals 505--Tax Withholding and Estimated Tax 514--Foreign Tax Credit for Individuals 516--U. 2011 tax return turbotax S. 2011 tax return turbotax Government Civilian Employees Stationed Abroad 517--Social Security and Other Information for Members of the Clergy and Religious Workers 519--U. 2011 tax return turbotax S. 2011 tax return turbotax Tax Guide for Aliens 520--Scholarships and Fellowships 521--Moving Expenses 523--Selling Your Home 524--Credit for the Elderly or the Disabled 525--Taxable and Nontaxable Income 526--Charitable Contributions 527--Residential Rental Property 529--Miscellaneous Deductions 530--Tax Information for First-Time Homeowners 531--Reporting Tip Income 536--Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 537--Installment Sales 541--Partnerships 544--Sales and Other Dispositions of Assets 547--Casualties, Disasters, and Thefts 550--Investment Income and Expenses 551--Basis of Assets 552--Recordkeeping for Individuals 554--Older Americans' Tax Guide 555--Community Property 556--Examination of Returns, Appeal Rights, and Claims for Refund 559--Survivors, Executors, and Administrators 561--Determining the Value of Donated Property 564--Mutual Fund Distributions 570--Tax Guide for Individuals With Income From U. 2011 tax return turbotax S. 2011 tax return turbotax Possessions 571--Tax-Sheltered Annuity Plans (403(b) Plans) 575--Pension and Annuity Income 584--Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 587--Business Use of Your Home (Including Use by Daycare Providers) 590--Individual Retirement Arrangements (IRAs) 593--Tax Highlights for U. 2011 tax return turbotax S. 2011 tax return turbotax Citizens and Residents Going Abroad 594--What You Should Know About the IRS Collection Process 596--Earned Income Credit (EIC) 721--Tax Guide to U. 2011 tax return turbotax S. 2011 tax return turbotax Civil Service Retirement Benefits 901--U. 2011 tax return turbotax S. 2011 tax return turbotax Tax Treaties 907--Tax Highlights for Persons with Disabilities 908--Bankruptcy Tax Guide 915--Social Security and Equivalent Railroad Retirement Benefits 919--How Do I Adjust My Tax Withholding? 925--Passive Activity and At-Risk Rules 926--Household Employer's Tax Guide 929--Tax Rules for Children and Dependents 936--Home Mortgage Interest Deduction 946--How to Depreciate Property 947--Practice Before the IRS and Power of Attorney 950--Introduction to Estate and Gift Taxes 967--The IRS Will Figure Your Tax 969--Health Savings Accounts and Other Tax-Favored Health Plans 970--Tax Benefits for Education 971--Innocent Spouse Relief 972--Child Tax Credit 1542--Per Diem Rates 1544--Reporting Cash Payments of Over $10,000 (Received in a Trade or Business) 1546--The Taxpayer Advocate Service of the IRS - How to Get Help With Unresolved Tax Problems Spanish Language Publications. 2011 tax return turbotax   1SP--Derechos del Contribuyente 579SP--Cómo Preparar la Declaración de Impuesto Federal 594SP--Que es lo que Debemos Saber sobre el Proceso de Cobro del IRS 596SP--Crédito por Ingreso del Trabajo 850--English-Spanish Glossary of Words and Phrases Used in Publications Issued by the Internal Revenue Service 1544SP--Informe de Pagos en Efectivo en Exceso de $10,000 (Recibidos en una Ocupación o Negocio) Commonly Used Tax Forms. 2011 tax return turbotax  See How To Get Tax Help for a variety of ways to get forms, including by computer, fax, phone, and mail. 2011 tax return turbotax 1040--U. 2011 tax return turbotax S. 2011 tax return turbotax Individual Income Tax Return Schedule A&B--Itemized Deductions & Interest and Ordinary Dividends Schedule C--Profit or Loss From Business Schedule C-EZ--Net Profit From Business Schedule D--Capital Gains and Losses Schedule D-1--Continuation Sheet for Schedule D Schedule E--Supplemental Income and Loss Schedule EIC--Earned Income Credit Schedule F--Profit or Loss From Farming Schedule H--Household Employment Taxes Schedule J--Income Averaging for Farmers and Fishermen Schedule R--Credit for the Elderly or the Disabled Schedule SE--Self-Employment Tax 1040A--U. 2011 tax return turbotax S. 2011 tax return turbotax Individual Income Tax Return Schedule 1--Interest and Ordinary Dividends for Form 1040A Filers Schedule 2--Child and Dependent Care Expenses for Form 1040A Filers Schedule 3--Credit for the Elderly or the Disabled for Form 1040A Filers 1040EZ--Income Tax Return for Single and Joint Filers With No Dependents 1040-ES--Estimated Tax for Individuals 1040X--Amended U. 2011 tax return turbotax S. 2011 tax return turbotax Individual Income Tax Return 2106--Employee Business Expenses 2106-EZ--Unreimbursed Employee Business Expenses 2210--Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2441--Child and Dependent Care Expenses 2848--Power of Attorney and Declaration of Representative 3903--Moving Expenses 4562--Depreciation and Amortization 4868--Application for Automatic Extension of Time To File U. 2011 tax return turbotax S. 2011 tax return turbotax Individual Income Tax Return 4952--Investment Interest Expense Deduction 5329--Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 6251--Alternative Minimum Tax--Individuals 8283--Noncash Charitable Contributions 8582--Passive Activity Loss Limitations 8606--Nondeductible IRAs 8812--Additional Child Tax Credit 8822--Change of Address 8829--Expenses for Business Use of Your Home 8863--Education Credits 9465--Installment Agreement Request Prev  Up  Next   Home   More Online Publications
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The 2011 Tax Return Turbotax

2011 tax return turbotax 10. 2011 tax return turbotax   Installment Sales Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Installment Sale of a Farm Installment MethodWhen to elect out. 2011 tax return turbotax Revoking the election. 2011 tax return turbotax More information. 2011 tax return turbotax Figuring Installment Sale Income Payments Received or Considered Received ExampleSection 1231 gains. 2011 tax return turbotax Summary. 2011 tax return turbotax Introduction An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. 2011 tax return turbotax If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. 2011 tax return turbotax This method of reporting gain is called the installment method. 2011 tax return turbotax You cannot use the installment method to report a loss. 2011 tax return turbotax You can choose to report all of your gain in the year of sale. 2011 tax return turbotax Installment obligation. 2011 tax return turbotax   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 tax return turbotax Topics - This chapter discusses: The general rules that apply to using the installment method Installment sale of a farm Useful Items - You may want to see: Publication 523 Selling Your Home 535 Business Expenses 537 Installment Sales 538 Accounting Periods and Methods 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property 6252 Installment Sale Income See chapter 16 for information about getting publications and forms. 2011 tax return turbotax Installment Sale of a Farm The installment sale of a farm for one overall price under a single contract is not the sale of a single asset. 2011 tax return turbotax It generally includes the sale of real property and personal property reportable on the installment method. 2011 tax return turbotax It may also include the sale of property for which you must maintain an inventory, which cannot be reported on the installment method. 2011 tax return turbotax See Inventory , later. 2011 tax return turbotax The selling price must be allocated to determine the amount received for each class of asset. 2011 tax return turbotax The tax treatment of the gain or loss on the sale of each class of assets is determined by its classification as a capital asset, as property used in the business, or as property held for sale and by the length of time the asset was held. 2011 tax return turbotax (See chapter 8 for a discussion of capital assets and chapter 9 for a discussion of property used in the business. 2011 tax return turbotax ) Separate computations must be made to figure the gain or loss for each class of asset sold. 2011 tax return turbotax See Sale of a Farm in chapter 8. 2011 tax return turbotax If you report the sale of property on the installment method, any depreciation recapture under section 1245 or 1250 of the Internal Revenue Code is generally taxable as ordinary income in the year of sale. 2011 tax return turbotax See Depreciation recapture , later. 2011 tax return turbotax This applies even if no payments are received in that year. 2011 tax return turbotax Installment Method An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. 2011 tax return turbotax A farmer who is not required to maintain an inventory can use the installment method to report gain from the sale of property used or produced in farming. 2011 tax return turbotax See Inventory , later, for information on the sale of farm property where inventory items are included in the assets sold. 2011 tax return turbotax 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 tax return turbotax Electing out of the installment method. 2011 tax return turbotax   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 tax return turbotax   To make this election, do not report your sale on Form 6252. 2011 tax return turbotax Instead, report it on Schedule D (Form 1040), Form 4797, or both. 2011 tax return turbotax When to elect out. 2011 tax return turbotax   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. 2011 tax return turbotax   However, if you timely file your tax return for the year the sale takes place without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 2011 tax return turbotax Write “Filed pursuant to section 301. 2011 tax return turbotax 9100-2” at the top of the amended return and file it where the original return was filed. 2011 tax return turbotax Revoking the election. 2011 tax return turbotax   Once made, the election can be revoked only with IRS approval. 2011 tax return turbotax A revocation is retroactive. 2011 tax return turbotax More information. 2011 tax return turbotax   See Electing Out of the Installment Method in Publication 537 for more information. 2011 tax return turbotax Inventory. 2011 tax return turbotax   The sale of farm inventory items cannot be reported on the installment method. 2011 tax return turbotax All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. 2011 tax return turbotax   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 tax return turbotax If you do not, each payment must be allocated between the inventory and the other assets sold. 2011 tax return turbotax Sale at a loss. 2011 tax return turbotax   If your sale results in a loss, you cannot use the installment method. 2011 tax return turbotax If the loss is on an installment sale of business assets, you can deduct it only in the tax year of sale. 2011 tax return turbotax Figuring Installment Sale Income Each payment on an installment sale usually consists of the following three parts. 2011 tax return turbotax Interest income. 2011 tax return turbotax Return of your adjusted basis in the property. 2011 tax return turbotax Gain on the sale. 2011 tax return turbotax 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 tax return turbotax You do not include in income the part that is the return of your basis in the property. 2011 tax return turbotax Basis is the amount of your investment in the property for installment sale purposes. 2011 tax return turbotax Interest income. 2011 tax return turbotax   You must report interest as ordinary income. 2011 tax return turbotax Interest is generally not included in a down payment. 2011 tax return turbotax 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 tax return turbotax Interest provided in the agreement is called stated interest. 2011 tax return turbotax If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. 2011 tax return turbotax See Unstated interest , later. 2011 tax return turbotax    You must continue to report the interest income on payments you receive in subsequent years as interest income. 2011 tax return turbotax Adjusted basis and installment sale income (gain on sale). 2011 tax return turbotax   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 tax return turbotax A tax-free return of your adjusted basis in the property, and Your gain (referred to as “installment sale income” on Form 6252). 2011 tax return turbotax Figuring adjusted basis for installment sale purposes. 2011 tax return turbotax   You can use Worksheet 10-1 to figure your adjusted basis in the property for installment sale purposes. 2011 tax return turbotax 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 tax return turbotax    Worksheet 10-1. 2011 tax return turbotax Figuring Adjusted Basis and Gross Profit Percentage 1. 2011 tax return turbotax Enter the selling price for the property   2. 2011 tax return turbotax Enter your adjusted basis for the property     3. 2011 tax return turbotax Enter your selling expenses     4. 2011 tax return turbotax Enter any depreciation recapture     5. 2011 tax return turbotax Add lines 2, 3, and 4. 2011 tax return turbotax  This is your adjusted basis  for installment sale purposes   6. 2011 tax return turbotax Subtract line 5 from line 1. 2011 tax return turbotax If zero or less, enter -0-. 2011 tax return turbotax  This is your gross profit     If the amount entered on line 6 is zero, Stop here. 2011 tax return turbotax You cannot use the installment method. 2011 tax return turbotax   7. 2011 tax return turbotax Enter the contract price for the property   8. 2011 tax return turbotax Divide line 6 by line 7. 2011 tax return turbotax This is your gross profit percentage   Selling price. 2011 tax return turbotax   The selling price is the total cost of the property to the buyer and includes the following. 2011 tax return turbotax Any money you are to receive. 2011 tax return turbotax The fair market value (FMV) of any property you are to receive (FMV is discussed at Property used as a payment under Payments Received or Considered Received ). 2011 tax return turbotax 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 tax return turbotax Any of your selling expenses the buyer pays. 2011 tax return turbotax Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. 2011 tax return turbotax Adjusted basis for installment sale purposes. 2011 tax return turbotax   Your adjusted basis is the total of the following three items. 2011 tax return turbotax Adjusted basis. 2011 tax return turbotax Selling expenses. 2011 tax return turbotax Depreciation recapture. 2011 tax return turbotax Adjusted basis. 2011 tax return turbotax   Basis is your investment in the property for installment sale purposes. 2011 tax return turbotax The way you figure basis depends on how you acquire the property. 2011 tax return turbotax The basis of property you buy is generally its cost. 2011 tax return turbotax The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. 2011 tax return turbotax   While you own property, various events may change your original basis. 2011 tax return turbotax Some events, such as adding rooms or making permanent improvements, increase basis. 2011 tax return turbotax Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. 2011 tax return turbotax The result is adjusted basis. 2011 tax return turbotax See chapter 6 and Publication 551, Basis of Assets, for more information. 2011 tax return turbotax Selling expenses. 2011 tax return turbotax   Selling expenses relate to the sale of the property. 2011 tax return turbotax They include commissions, attorney fees, and any other expenses paid on the sale. 2011 tax return turbotax Selling expenses are added to the basis of the sold property. 2011 tax return turbotax Depreciation recapture. 2011 tax return turbotax   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. 2011 tax return turbotax See Depreciation Recapture in chapter 9 and Depreciation Recapture Income in Publication 537. 2011 tax return turbotax Gross profit. 2011 tax return turbotax   Gross profit is the total gain you report on the installment method. 2011 tax return turbotax   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. 2011 tax return turbotax If the property you sold was your home, subtract from the gross profit any gain you can exclude. 2011 tax return turbotax Contract price. 2011 tax return turbotax   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 tax return turbotax Gross profit percentage. 2011 tax return turbotax   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. 2011 tax return turbotax This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. 2011 tax return turbotax   The gross profit percentage generally remains the same for each payment you receive. 2011 tax return turbotax However, see the example under Selling price reduced , later, for a situation where the gross profit percentage changes. 2011 tax return turbotax Amount to report as installment sale income. 2011 tax return turbotax   Multiply the payments you receive each year (less interest) by the gross profit percentage. 2011 tax return turbotax The result is your installment sales income for the tax year. 2011 tax return turbotax In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. 2011 tax return turbotax A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. 2011 tax return turbotax For a detailed discussion, see Payments Received or Considered Received , later. 2011 tax return turbotax Selling price reduced. 2011 tax return turbotax   If the selling price is reduced at a later date, the gross profit on the sale also will change. 2011 tax return turbotax You then must refigure the gross profit percentage for the remaining payments. 2011 tax return turbotax Refigure your gross profit using Worksheet 10-2. 2011 tax return turbotax New Gross Profit Percentage — Selling Price Reduced. 2011 tax return turbotax You will spread any remaining gain over future installments. 2011 tax return turbotax    Worksheet 10-2. 2011 tax return turbotax New Gross Profit Percentage — Selling Price Reduced 1. 2011 tax return turbotax Enter the reduced selling  price for the property   2. 2011 tax return turbotax Enter your adjusted  basis for the  property     3. 2011 tax return turbotax Enter your selling  expenses     4. 2011 tax return turbotax Enter any depreciation  recapture     5. 2011 tax return turbotax Add lines 2, 3, and 4. 2011 tax return turbotax   6. 2011 tax return turbotax Subtract line 5 from line 1. 2011 tax return turbotax  This is your adjusted  gross profit   7. 2011 tax return turbotax Enter any installment sale  income reported in  prior year(s)   8. 2011 tax return turbotax Subtract line 7 from line 6   9. 2011 tax return turbotax Future installments     10. 2011 tax return turbotax Divide line 8 by line 9. 2011 tax return turbotax  This is your new  gross profit percentage*. 2011 tax return turbotax   * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. 2011 tax return turbotax Example. 2011 tax return turbotax In 2011, you sold land with a basis of $40,000 for $100,000. 2011 tax return turbotax Your gross profit was $60,000. 2011 tax return turbotax You received a $20,000 down payment and the buyer's note for $80,000. 2011 tax return turbotax The note provides for monthly payments of $1,953 each, figured at 8% interest, amortized over four years, beginning in January 2012. 2011 tax return turbotax Your gross profit percentage was 60%. 2011 tax return turbotax You received the down payment of $20,000 in 2011 and total payments of $23,436 in 2012, of which $17,675 was principal and $5,761 was interest according to the amortization schedule. 2011 tax return turbotax You reported a gain of $12,000 on the down payment received in 2011 and $10,605 ($17,675 X 60% (. 2011 tax return turbotax 60)) in 2012. 2011 tax return turbotax In January 2013, you and the buyer agreed to reduce the purchase price to $85,000 and payments during 2013, 2014, and 2015 are reduced to $1,483 a month amortized over the remaining three years. 2011 tax return turbotax The new gross profit percentage, 47. 2011 tax return turbotax 32%, is figured in Example — Worksheet 10-2. 2011 tax return turbotax Example — Worksheet 10-2. 2011 tax return turbotax New Gross Profit Percentage — Selling Price Reduced 1. 2011 tax return turbotax Enter the reduced selling  price for the property 85,000 2. 2011 tax return turbotax Enter your adjusted  basis for the  property 40,000   3. 2011 tax return turbotax Enter your selling  expenses -0-   4. 2011 tax return turbotax Enter any depreciation  recapture -0-   5. 2011 tax return turbotax Add lines 2, 3, and 4. 2011 tax return turbotax 40,000 6. 2011 tax return turbotax Subtract line 5 from line 1. 2011 tax return turbotax  This is your adjusted  gross profit 45,000 7. 2011 tax return turbotax Enter any installment sale  income reported in  prior year(s) 22,605 8. 2011 tax return turbotax Subtract line 7 from line 6 22,395 9. 2011 tax return turbotax Future installments   47,325 10. 2011 tax return turbotax Divide line 8 by line 9. 2011 tax return turbotax  This is your new  gross profit percentage*. 2011 tax return turbotax 47. 2011 tax return turbotax 32% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. 2011 tax return turbotax You will report installment sale income of $6,878 (47. 2011 tax return turbotax 32% of $14,535) in 2013, $7,449 (47. 2011 tax return turbotax 32% of $15,742) in 2014, and $8,067 (47. 2011 tax return turbotax 32% of $17,048) in 2015. 2011 tax return turbotax Form 6252. 2011 tax return turbotax   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 tax return turbotax Attach it to your tax return for each year. 2011 tax return turbotax Disposition of Installment Obligation If you are using the installment method and you dispose of the installment obligation, generally you will have a gain or loss to report. 2011 tax return turbotax It is considered gain or loss on the sale of the property for which you received the installment obligation. 2011 tax return turbotax Cancellation. 2011 tax return turbotax   If an installment obligation is canceled or otherwise becomes unenforceable, it is treated as a disposition other than a sale or exchange. 2011 tax return turbotax Your gain or loss is the difference between your basis in the obligation and its fair market value (FMV) at the time you cancel it. 2011 tax return turbotax If the parties are related, the FMV of the obligation is considered to be no less than its full face value. 2011 tax return turbotax Transfer due to death. 2011 tax return turbotax   The transfer of an installment obligation (other than to a buyer) as a result of the death of the seller is not a disposition. 2011 tax return turbotax Any unreported gain from the installment obligation is not treated as gross income to the decedent. 2011 tax return turbotax No income is reported on the decedent's return due to the transfer. 2011 tax return turbotax Whoever receives the installment obligation as a result of the seller's death is taxed on the installment payments the same as the seller would have been had the seller lived to receive the payments. 2011 tax return turbotax   However, if the installment obligation is canceled, becomes unenforceable, or is transferred to the buyer because of the death of the holder of the obligation, it is a disposition. 2011 tax return turbotax The estate must figure its gain or loss on the disposition. 2011 tax return turbotax If the holder and the buyer were related, the FMV of the installment obligation is considered to be no less than its full face value. 2011 tax return turbotax More information. 2011 tax return turbotax   For more information on the disposition of an installment obligation, see Publication 537. 2011 tax return turbotax Sale of depreciable property. 2011 tax return turbotax   You generally cannot report gain from the sale of depreciable property to a related person on the installment method. 2011 tax return turbotax See Sale to a Related Person in Publication 537. 2011 tax return turbotax   You cannot use the installment method to report any depreciation recapture income up to the gain on the sale. 2011 tax return turbotax However, report any gain greater than the recapture income on the installment method. 2011 tax return turbotax   The recapture income reported in the year of sale is included in your installment sale basis to determine your gross profit on the installment sale. 2011 tax return turbotax   Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. 2011 tax return turbotax Report the depreciation recapture income in Part II of Form 4797 as ordinary income in the year of sale. 2011 tax return turbotax    If you sell depreciable business property, prepare Form 4797 first in order to figure the amount to enter on line 12 of Part I, Form 6252. 2011 tax return turbotax See the Form 6252 instructions for details. 2011 tax return turbotax   For more information on the section 179 deduction, see Section 179 Expense Deduction in chapter 7. 2011 tax return turbotax For more information on depreciation recapture, see Depreciation Recapture in  chapter 9. 2011 tax return turbotax 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 tax return turbotax In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. 2011 tax return turbotax 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 tax return turbotax However, as discussed later, the buyer's assumption of your debt is treated as a recovery of basis, rather than as a payment, in many cases. 2011 tax return turbotax Buyer pays seller's expenses. 2011 tax return turbotax   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 tax return turbotax Include these expenses in the selling and contract prices when figuring the gross profit percentage. 2011 tax return turbotax Buyer assumes mortgage. 2011 tax return turbotax   If the buyer assumes or pays off your mortgage, or otherwise takes the property subject to the mortgage, the following rules apply. 2011 tax return turbotax Mortgage less than basis. 2011 tax return turbotax   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 tax return turbotax It is considered a recovery of your basis. 2011 tax return turbotax The contract price is the selling price minus the mortgage. 2011 tax return turbotax Example. 2011 tax return turbotax You sell property with an adjusted basis of $19,000. 2011 tax return turbotax You have selling expenses of $1,000. 2011 tax return turbotax 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 8% interest) in each of the next 4 years). 2011 tax return turbotax The selling price is $25,000 ($15,000 + $10,000). 2011 tax return turbotax Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). 2011 tax return turbotax The contract price is $10,000 ($25,000 − $15,000 mortgage). 2011 tax return turbotax Your gross profit percentage is 50% ($5,000 ÷ $10,000). 2011 tax return turbotax You report half of each $2,000 payment received as gain from the sale. 2011 tax return turbotax You also report all interest you receive as ordinary income. 2011 tax return turbotax Mortgage more than basis. 2011 tax return turbotax   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. 2011 tax return turbotax The part of the mortgage greater than your basis is treated as a payment received in the year of sale. 2011 tax return turbotax   To figure the contract price, subtract the mortgage from the selling price. 2011 tax return turbotax This is the total amount (other than interest) you will receive directly from the buyer. 2011 tax return turbotax Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). 2011 tax return turbotax The contract price is then the same as your gross profit from the sale. 2011 tax return turbotax    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 tax return turbotax Example. 2011 tax return turbotax The selling price for your property is $9,000. 2011 tax return turbotax 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 tax return turbotax Your adjusted basis in the property is $4,400. 2011 tax return turbotax You have selling expenses of $600, for a total installment sale basis of $5,000. 2011 tax return turbotax The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). 2011 tax return turbotax This amount is included in the contract price and treated as a payment received in the year of sale. 2011 tax return turbotax 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 tax return turbotax Report 100% of each payment (less interest) as gain from the sale. 2011 tax return turbotax 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 tax return turbotax Buyer assumes other debts. 2011 tax return turbotax   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 tax return turbotax   If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. 2011 tax return turbotax Compare the debt to your installment sale basis in the property being sold. 2011 tax return turbotax If the debt is less than your installment sale basis, none of it is treated as a payment. 2011 tax return turbotax If it is more, only the difference is treated as a payment. 2011 tax return turbotax 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 tax return turbotax These rules are the same as the rules discussed earlier under Buyer assumes mortgage . 2011 tax return turbotax However, they apply only to the following types of debt the buyer assumes. 2011 tax return turbotax Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. 2011 tax return turbotax Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. 2011 tax return turbotax   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 tax return turbotax The value of the assumed debt is then considered a payment to you in the year of sale. 2011 tax return turbotax Property used as a payment. 2011 tax return turbotax   If you receive property rather than money from the buyer, it is still considered a payment in the year received. 2011 tax return turbotax However, see Trading property for like-kind property , later. 2011 tax return turbotax Generally, the amount of the payment is the property's FMV on the date you receive it. 2011 tax return turbotax Exception. 2011 tax return turbotax   If the property the buyer gives you is payable on demand or readily tradable (see examples later), 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 an 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 tax return turbotax See Unstated interest , later. 2011 tax return turbotax Examples. 2011 tax return turbotax If you receive a note from the buyer as payment, and the note stipulates that you can demand payment from the buyer at any time, the note is payable on demand. 2011 tax return turbotax If you receive marketable securities from the buyer as payment, and you can sell the securities on an established securities market (such as the New York Stock Exchange) at any time, the securities are readily tradable. 2011 tax return turbotax In these examples, use the above rules to determine the amount you should consider as payment in the year received. 2011 tax return turbotax Debt not payable on demand. 2011 tax return turbotax   Any evidence of debt you receive from the buyer that is not payable on demand is not considered a payment. 2011 tax return turbotax This is true even if the debt is guaranteed by a third party, including a government agency. 2011 tax return turbotax Fair market value (FMV). 2011 tax return turbotax   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 tax return turbotax Third-party note. 2011 tax return turbotax   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 tax return turbotax 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 tax return turbotax The excess of the note's face value over its FMV is interest. 2011 tax return turbotax Exclude this interest in determining the selling price of the property. 2011 tax return turbotax However, see Exception under Property used as a payment , earlier. 2011 tax return turbotax Example. 2011 tax return turbotax You sold real estate in an installment sale. 2011 tax return turbotax As part of the down payment, the buyer assigned to you a $50,000, 8% third-party note. 2011 tax return turbotax The FMV of the third-party note at the time of the sale was $30,000. 2011 tax return turbotax This amount, not $50,000, is a payment to you in the year of sale. 2011 tax return turbotax 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 tax return turbotax The remaining 40% is interest taxed as ordinary income. 2011 tax return turbotax Bond. 2011 tax return turbotax   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 tax return turbotax For more information on the amount you should treat as a payment, see Exception under Property used as a payment , earlier. 2011 tax return turbotax   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 tax return turbotax However, see Exception under Property used as a payment , earlier. 2011 tax return turbotax Buyer's note. 2011 tax return turbotax   The buyer's note (unless payable on demand) is not considered payment on the sale. 2011 tax return turbotax However, its full face value is included when figuring the selling price and the contract price. 2011 tax return turbotax Payments you receive on the note are used to figure your gain in the year received. 2011 tax return turbotax Sale to a related person. 2011 tax return turbotax   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 tax return turbotax For information on these rules, see the Instructions for Form 6252 and Sale to a Related Person in Publication 537. 2011 tax return turbotax Trading property for like-kind property. 2011 tax return turbotax   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 tax return turbotax See Like-Kind Exchanges in chapter 8 for a discussion of like-kind property. 2011 tax return turbotax   If, in addition to like-kind property, you receive an installment obligation in the exchange, the following rules apply to determine installment sale income each year. 2011 tax return turbotax The contract price is reduced by the FMV of the like-kind property received in the trade. 2011 tax return turbotax The gross profit is reduced by any gain on the trade that can be postponed. 2011 tax return turbotax Like-kind property received in the trade is not considered payment on the installment obligation. 2011 tax return turbotax Unstated interest. 2011 tax return turbotax   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 tax return turbotax Interest provided in the contract is called stated interest. 2011 tax return turbotax   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 tax return turbotax If Internal Revenue Code section 483 applies to the contract, this interest is called unstated interest. 2011 tax return turbotax   If Internal Revenue Code section 1274 applies to the contract, this interest is called original issue discount (OID). 2011 tax return turbotax   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. 2011 tax return turbotax Therefore, the buyer cannot deduct the unstated interest. 2011 tax return turbotax The seller must report the unstated interest as income. 2011 tax return turbotax 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 tax return turbotax   If the debt is subject to the Internal Revenue Code 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 tax return turbotax   Unstated interest reduces the stated selling price of the property and the buyer's basis in the property. 2011 tax return turbotax It increases the seller's interest income and the buyer's interest expense. 2011 tax return turbotax   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 applicable federal rate (AFR). 2011 tax return turbotax    The AFRs are published monthly in the Internal Revenue Bulletin (IRB). 2011 tax return turbotax You can get this information by contacting an IRS office. 2011 tax return turbotax IRBs are also available at IRS. 2011 tax return turbotax gov. 2011 tax return turbotax More information. 2011 tax return turbotax   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. 2011 tax return turbotax Example. 2011 tax return turbotax You sell property at a contract price of $6,000 and your gross profit is $1,500. 2011 tax return turbotax Your gross profit percentage is 25% ($1,500 ÷ $6,000). 2011 tax return turbotax 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 tax return turbotax The remainder (balance) of each payment is the tax-free return of your adjusted basis. 2011 tax return turbotax Example On January 3, 2013, you sold your farm, including the home, farm land and buildings. 2011 tax return turbotax You received $50,000 down and the buyer's note for $200,000. 2011 tax return turbotax In addition, the buyer assumed an outstanding $50,000 mortgage on the farm land. 2011 tax return turbotax The total selling price was $300,000. 2011 tax return turbotax The note payments of $25,000 each, plus adequate interest, are due every July 1 and January 1, beginning in July 2013. 2011 tax return turbotax Your selling expenses were $15,000. 2011 tax return turbotax Adjusted basis and depreciation. 2011 tax return turbotax   The adjusted basis and depreciation claimed on each asset sold are as follows:   Depreciation Adjusted Asset Claimed Basis Home* -0- $33,743 Farm land -0- 73,610 Buildings $31,500 35,130 * Owned and used as main home for at least 2 of the 5 years prior to the sale Gain on each asset. 2011 tax return turbotax   The following schedule shows the assets included in the sale, each asset's selling price based on its respective value, the selling expense allocated to each asset, the adjusted basis of each asset, and the gain on each asset. 2011 tax return turbotax The selling expense for each asset is 5% of the selling price ($15,000 selling expense ÷ $300,000 selling price). 2011 tax return turbotax   Selling Selling Adjusted     Price Expense Basis Gain Home* $60,000 $3,000 $33,743 $23,257 Farm land  165,000  8,250  73,610  83,140 Buildings 75,000 3,750 35,130 36,120   $300,000 $15,000 $142,483 $142,517 * Owned and used as main home for at least 2 of the 5 years prior to the sale Depreciation recapture. 2011 tax return turbotax   The buildings are section 1250 property. 2011 tax return turbotax There is no depreciation recapture income for them because they were depreciated using the straight line method. 2011 tax return turbotax See chapter 9 for more information on depreciation recapture. 2011 tax return turbotax   Special rules may apply when you sell section 1250 assets depreciated under the straight line method. 2011 tax return turbotax See the Unrecaptured Section 1250 Gain Worksheet in the Instructions for Schedule D (Form 1040). 2011 tax return turbotax See chapter 3 of Publication 544, Sales and Other Dispositions of Assets, for more information on section 1250 assets. 2011 tax return turbotax Installment sale basis and gross profit. 2011 tax return turbotax   The following table shows each asset reported on the installment method, its selling price, installment sale basis, and gross profit. 2011 tax return turbotax     Installment     Selling Sale Gross   Price Basis Profit Farm land $165,000 $73,610 $83,140 Buildings 75,000 35,130 36,120   $240,000 $108,740 $119,260 Section 1231 gains. 2011 tax return turbotax   The gain on the farm land and buildings is reported as section 1231 gains. 2011 tax return turbotax See Section 1231 Gains and Losses in chapter 9. 2011 tax return turbotax Contract price and gross profit percentage. 2011 tax return turbotax   The contract price is $250,000 for the part of the sale reported on the installment method. 2011 tax return turbotax This is the selling price ($300,000) minus the mortgage assumed ($50,000). 2011 tax return turbotax   Gross profit percentage for the sale is 47. 2011 tax return turbotax 70% ($119,260 gross profit ÷ $250,000 contract price). 2011 tax return turbotax The gross profit percentage for each asset is figured as follows:   Percent Farm land ($83,140 ÷ $250,000) 33. 2011 tax return turbotax 256 Buildings ($36,120 ÷ $250,000) 14. 2011 tax return turbotax 448 Total 47. 2011 tax return turbotax 70 Figuring the gain to report on the installment method. 2011 tax return turbotax   One hundred percent (100%) of each payment is reported on the installment method. 2011 tax return turbotax The total amount received on the sale in 2013 is $75,000 ($50,000 down payment + $25,000 payment on July 1). 2011 tax return turbotax The installment sale part of the total payments received in 2013 is also $75,000. 2011 tax return turbotax Figure the gain to report for each asset by multiplying its gross profit percentage times $75,000. 2011 tax return turbotax   Income Farm land—33. 2011 tax return turbotax 256% × $75,000 $24,942 Buildings—14. 2011 tax return turbotax 448% × $75,000 10,836 Total installment income for 2013 $35,778 Reporting the sale. 2011 tax return turbotax   Report the installment sale on Form 6252. 2011 tax return turbotax Then report the amounts from Form 6252 on Form 4797 and Schedule D (Form 1040). 2011 tax return turbotax Attach a separate page to Form 6252 that shows the computations in the example. 2011 tax return turbotax If you sell depreciable business property, prepare Form 4797 first in order to figure the amount to enter on line 12 of Part I, Form 6252. 2011 tax return turbotax Section 1231 gains. 2011 tax return turbotax   The gains on the farm land and buildings are section 1231 gains. 2011 tax return turbotax They may be reported as either capital or ordinary gain depending on the net balance when combined with other section 1231 losses. 2011 tax return turbotax A net 1231 gain is capital gain and a net 1231 loss is an ordinary loss. 2011 tax return turbotax Installment income for years after 2013. 2011 tax return turbotax   You figure installment income for the years after 2013 by applying the same gross profit percentages to the payments you receive each year. 2011 tax return turbotax If you receive $50,000 during the year, the entire $50,000 is considered received on the installment sale (100% × $50,000). 2011 tax return turbotax You realize income as follows:   Income Farm land—33. 2011 tax return turbotax 256% × $50,000 $16,628 Buildings—14. 2011 tax return turbotax 448% × $50,000 7,224 Total installment income $23,852   In this example, no gain ever is recognized from the sale of your home. 2011 tax return turbotax You will combine your section 1231 gains from this sale with section 1231 gains and losses from other sales in each of the later years to determine whether to report them as ordinary or capital gains. 2011 tax return turbotax The interest received with each payment will be included in full as ordinary income. 2011 tax return turbotax Summary. 2011 tax return turbotax   The installment income (rounded to the nearest dollar) from the sale of the farm is reported as follows: Selling price $190,000 Minus: Installment basis (108,740) Gross profit $81,260     Gain reported in 2012 (year of sale) $35,778 Gain reported in 2013:   $50,000 × 47. 2011 tax return turbotax 70% 23,850 Gain reported in 2014:   $50,000 × 47. 2011 tax return turbotax 70% 23,850 Gain reported in 2015:   $50,000 × 47. 2011 tax return turbotax 70% 23,850 Gain reported in 2016:   $25,000 × 47. 2011 tax return turbotax 70% 11,925 Total gain reported $119,253 Prev  Up  Next   Home   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