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Filing And Amended Tax Return

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Filing And Amended Tax Return

Filing and amended tax return Publication 929 - Introductory Material Table of Contents Future Developments Reminders IntroductionOrdering forms and publications. Filing and amended tax return Tax questions. Filing and amended tax return Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 929, such as legislation enacted after this publication was published, go to www. Filing and amended tax return irs. Filing and amended tax return gov/pub929. Filing and amended tax return Reminders Social security number (SSN). Filing and amended tax return  Dependents who are required to file a tax return must have an SSN. Filing and amended tax return To apply for an SSN, file Form SS-5 with the Social Security Administration. Filing and amended tax return You can go to the website www. Filing and amended tax return socialsecurity. Filing and amended tax return gov for more information. Filing and amended tax return Individual taxpayer identification number (ITIN). Filing and amended tax return  The IRS will issue an ITIN to a nonresident or resident alien who does not have and is not eligible to get an SSN. Filing and amended tax return To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS. Filing and amended tax return It takes 6-10 weeks to get an ITIN. Filing and amended tax return The ITIN is entered wherever an SSN is requested on a tax return. Filing and amended tax return If you are a nonresident alien applying for an ITIN to file a tax return, you generally must attach your original, completed return to Form W-7 to get an ITIN. Filing and amended tax return See the Form W-7 instructions for more information. Filing and amended tax return An ITIN is for tax use only. Filing and amended tax return It does not entitle you to social security benefits or change your employment or immigration status under U. Filing and amended tax return S. Filing and amended tax return law. Filing and amended tax return Effective January 1, 2013, ITINs will expire after 5 years. Filing and amended tax return Taxpayers who still need an ITIN after the end of the expiration period must reapply for a number. Filing and amended tax return Photographs of missing children. Filing and amended tax return  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Filing and amended tax return Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Filing and amended tax return 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. Filing and amended tax return Introduction Part 1 of this publication explains the filing requirements and other tax information for individuals who can be claimed as a dependent on another person's tax return. Filing and amended tax return  Part 2 explains how to report and figure the tax on unearned income of certain children (whether or not they can be claimed as dependents). Filing and amended tax return Definitions. Filing and amended tax return   Many of the terms used in this publication, such as “dependent,” “earned income,” and “unearned income,” are defined in the Glossary at the back of this publication. Filing and amended tax return Comments and suggestions. Filing and amended tax return   We welcome your comments about this publication and your suggestions for future editions. Filing and amended tax return   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Filing and amended tax return NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Filing and amended tax return Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Filing and amended tax return   You can send your comments from www. Filing and amended tax return irs. Filing and amended tax return gov/formspubs/. Filing and amended tax return Click on “More Information” and then on “Comment on Tax Forms and Publications. Filing and amended tax return ”   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. Filing and amended tax return Ordering forms and publications. Filing and amended tax return   Visit www. Filing and amended tax return irs. Filing and amended tax return gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Filing and amended tax return Internal Revenue Service 1201 N. Filing and amended tax return Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Filing and amended tax return   If you have a tax question, check the information available on IRS. Filing and amended tax return gov or call 1-800-829-1040. Filing and amended tax return We cannot answer tax questions sent to either of the above addresses. Filing and amended tax return Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 505 Tax Withholding and Estimated Tax 550 Investment Income and Expenses Form (and Instructions) W-4 Employee's Withholding Allowance Certificate 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends See How To Get Tax Help near the end of this publication for information about getting these publications and forms. Filing and amended tax return Prev  Up  Next   Home   More Online Publications
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Funeral Planning Checklist

  • Plan ahead.
  • Shop around and compare prices in advance.
  • Ask for a price list.
  • Resist pressure.
  • Avoid emotional overspending.
  • Recognize your rights.
  • Apply the smart shopping techniques you'd use for other major purchases.

Planning a Funeral

One of the most expensive purchases many consumers will ever make is the arrangement of a funeral. A traditional burial, including a casket and vault, costs about $7,000. Extras such as flowers, obituary notices, cards, and limousines can add thousands of dollars more. At such a highly emotional time, many people are easily swayed to believe that their decisions reflect how they feel about the deceased and wind up spending more than necessary.

Most funeral providers are professionals who work to serve their clients' needs and best interests. Unfortunately, some do not. They may take advantage of clients by insisting on unnecessary services, marking up prices and overcharging. That's why there is a federal law, called the Funeral Rule, which regulates the actions of funeral directors, homes and services.

Comparison shopping, either in person or by phone, can save you money and is much easier when done in advance. Many funeral homes will also send you a price list by mail, but this is not required by law.

If you have a problem concerning funeral matters, it's best to try to resolve it first with the funeral director. If you are dissatisfied, the Funeral Consumer's Alliance may be able to advise you on how best to resolve your issue. You can also contact your state or local consumer protection agencies; or the Funeral Service Consumer Assistance Program at 1-800-662-7666. Most states have a licensing board that regulates the funeral industry. You can contact the board in your state for information or help.

Many funeral providers offer a variety of package plans that include products and services that are most commonly sold. Keep in mind, you are not obligated to buy a package plan; you have the right to buy the individual products and services you prefer. As outlined by the Funeral Rule:

  • You have the right to choose the funeral goods and services you want (with some exceptions).
  • The funeral provider must state this "Rule" in writing on the general price list.
  • If state or local law requires you to buy any particular item, the funeral provider must disclose it on the price list, with a reference to the specific law.
  • The funeral provider may not refuse, or charge a fee, to handle a casket that you bought elsewhere.
  • A funeral provider that offers cremations must make alternative containers available.

Planning ahead is the best way to make informed decisions about funeral arrangements. An advanced plan also spares your family from having to make choices while grieving and under time constraints. Every family is different, and funeral arrangements are influenced by religious and cultural traditions, budgets and personal preferences.

You are not legally required to use a funeral home to plan and conduct a funeral. But most people find that the services of a professional funeral home make it easier.

Prepaying for a Funeral

Millions of Americans have entered into contracts to prearrange their funerals and prepay some or all of the expenses involved. Various states have laws to help ensure that these advance payments are available to pay for the funeral products and services when they're needed; however, protections vary widely from state to state. Some state laws require the funeral home or cemetery to place a percentage of the prepayment in a state-regulated trust or to purchase a life insurance policy with the death benefits assigned to the funeral home or cemetery.

The Filing And Amended Tax Return

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