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Filing State Tax Free

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Filing State Tax Free

Filing state tax free Index A Adjusted gross income (AGI) Income limits for, Income Limits Age Age 65, Age 65. Filing state tax free Mandatory retirement age, Payments that are not disability income. Filing state tax free Assistance (see Tax help) C Citizenship requirement, U. Filing state tax free S. Filing state tax free Citizen or Resident Alien Credit figured by IRS, Credit Figured for You Credit figured for you, Credit Figured for You D Disability benefits Nontaxable by law, Step 2. Filing state tax free Total Certain Nontaxable Pensions and Benefits Disability income, Disability income. Filing state tax free Disability, permanent and total disability, Qualified Individual, Permanent and total disability. Filing state tax free E Eligibility for credit, Are You Eligible for the Credit? Employer's accident or health plans or pension plans Disability income from, Disability income. Filing state tax free Excess adjusted gross income, Step 3. Filing state tax free Determine Excess Adjusted Gross Income F Figuring the credit yourself, Figuring the Credit Yourself Determine excess AGI, Step 3. Filing state tax free Determine Excess Adjusted Gross Income Determine initial amount, Step 1. Filing state tax free Determine Initial Amount Determine the credit, Step 5. Filing state tax free Determine Your Credit Determine the total of steps 2 and 3, Step 4. Filing state tax free Determine the Total of Steps 2 and 3 Total certain nontaxable pensions and benefits, Step 2. Filing state tax free Total Certain Nontaxable Pensions and Benefits Foreign military service Pension, annuity, or disability benefit from, Step 2. Filing state tax free Total Certain Nontaxable Pensions and Benefits Foreign Service Pension, annuity, or disability benefit from, Step 2. Filing state tax free Total Certain Nontaxable Pensions and Benefits Form RRB-1099 Payments by Railroad Retirement Board, Step 2. Filing state tax free Total Certain Nontaxable Pensions and Benefits Form SSA-1099 Social security benefit statement, Step 2. Filing state tax free Total Certain Nontaxable Pensions and Benefits Free tax services, Free help with your tax return. Filing state tax free H Head of household, Head of household. Filing state tax free Help (see Tax help) I Income limits, Income Limits Initial amounts for persons under age 65, Initial amounts for persons under age 65. Filing state tax free J Joint returns, Married Persons L Limit on credit, Limit on credit. Filing state tax free Lump-sum payments Accrued annual leave, Payments that are not disability income. Filing state tax free Death benefits paid to surviving spouse or child, Step 2. Filing state tax free Total Certain Nontaxable Pensions and Benefits M Mandatory retirement age, Payments that are not disability income. Filing state tax free Married taxpayers, Married Persons Mentally incompetent persons Sheltered employment for, Sheltered employment. Filing state tax free Missing children Photographs of, Reminders N National Oceanic and Atmospheric Administration Pension, annuity, or disability benefit from, Step 2. Filing state tax free Total Certain Nontaxable Pensions and Benefits Nonresident aliens, Exceptions. Filing state tax free Nontaxable payments, Step 2. Filing state tax free Total Certain Nontaxable Pensions and Benefits O Out of work, Substantial gainful activity. Filing state tax free P Pension or annuity payments Nontaxable by law, Step 2. Filing state tax free Total Certain Nontaxable Pensions and Benefits Permanent and total disability, Qualified Individual, Permanent and total disability. Filing state tax free Physician certification, Permanent and total disability. Filing state tax free , Physician's statement. Filing state tax free Public Health Service Pension, annuity, or disability benefit from, Step 2. Filing state tax free Total Certain Nontaxable Pensions and Benefits Publications (see Tax help) Q Qualified individual, Qualified Individual Age 65 or older, Qualified Individual Under age 65 and retired on permanent and total disability, Qualified Individual, Under Age 65 R Residence requirement, U. Filing state tax free S. Filing state tax free Citizen or Resident Alien S Schedule R, Credit Figured for You, Figuring the Credit Yourself, , Examples Sheltered employment, Sheltered employment. Filing state tax free Social security payments, Step 2. Filing state tax free Total Certain Nontaxable Pensions and Benefits Substantial gainful activity, Substantial gainful activity. Filing state tax free T Tables and figures Figure A, Qualified individual determination, Substantial gainful activity. Filing state tax free Table 1, Income limits, Substantial gainful activity. Filing state tax free , Table 1. Filing state tax free Income Limits Table 2, Initial amounts, Table 2. Filing state tax free Initial Amounts Tax help, How To Get Tax Help TTY/TDD information, How To Get Tax Help U U. Filing state tax free S. Filing state tax free citizens and resident aliens, U. Filing state tax free S. Filing state tax free Citizen or Resident Alien V VA Form 21-0172 Certification of permanent and total disability, Veterans. Filing state tax free Veterans Certification by VA of permanent and total disability, Veterans. Filing state tax free Exclusion of nontaxable pension or annuity payment or disability benefits, Step 2. Filing state tax free Total Certain Nontaxable Pensions and Benefits Prev  Up     Home   More Online Publications
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Know Your Rights as a Car Owner

Sometimes a manufacturer makes a design or production mistake on a motor vehicle. A service bulletin notifies the dealer of the problem and how to resolve it. Because these free repairs are not publicized, they are called "secret warranties." The National Highway Traffic Safety Administration maintains a database of service bulletins filed by manufacturers.

If you have a problem with a vehicle that is a safety hazard, check whether the manufacturer has recalled your vehicle. Click on Recalls or call NHTSA at 1-800-424-9393.Hazards that aren't listed should be reported to your dealer, the manufacturer of the vehicle, and NHTSA. If a safety-related defect exists, the maker must fix it at no cost to you-even if your warranty has expired.

If you have a vehicle with a unique problem that just never seems to get fixed, you may have a lemon. Some states have laws concerning lemons that require a refund or replacement if a problem is not fixed within a reasonable number of tries or if you haven't been able to use your vehicle for a certain number of days. Contact your local consumer protection office to learn whether you have such protections and what steps you must take to solve your problem. If you believe your car is a lemon:

  • Give the dealer a list of the problems every time you bring it in for repairs.
  • Get and keep copies of the repair orders listing the problems, the work done, and the dates the car was in the shop.
  • Contact the manufacturer, as well as the dealer, to report the problem. Check your owner's manual or the directory for the auto manufacturers.
  • Help other consumers avoid purchasing your lemon by registering it at safetyforum.com.

The Center for Auto Safety gathers information and complaints concerning safety defects, recalls, service bulletins and state lemon laws.

The Filing State Tax Free

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