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

Free state tax online filing 13. Free state tax online filing   How To Get Tax Help Table of Contents Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Free state tax online filing Free help with your tax return. Free state tax online filing   You can get free help preparing your return nationwide from IRS-certified volunteers. Free state tax online filing The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Free state tax online filing The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Free state tax online filing Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Free state tax online filing In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Free state tax online filing To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Free state tax online filing gov, download the IRS2Go app, or call 1-800-906-9887. Free state tax online filing   As part of the TCE program, AARP offers the Tax-Aide counseling program. Free state tax online filing To find the nearest AARP Tax-Aide site, visit AARP's website at www. Free state tax online filing aarp. Free state tax online filing org/money/taxaide or call 1-888-227-7669. Free state tax online filing For more information on these programs, go to IRS. Free state tax online filing gov and enter “VITA” in the search box. Free state tax online filing Internet. Free state tax online filing    IRS. Free state tax online filing gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Free state tax online filing Download the free IRS2Go app from the iTunes app store or from Google Play. Free state tax online filing Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Free state tax online filing Check the status of your 2013 refund with the Where's My Refund? application on IRS. Free state tax online filing gov or download the IRS2Go app and select the Refund Status option. Free state tax online filing The IRS issues more than 9 out of 10 refunds in less than 21 days. Free state tax online filing Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Free state tax online filing You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Free state tax online filing The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Free state tax online filing Use the Interactive Tax Assistant (ITA) to research your tax questions. Free state tax online filing No need to wait on the phone or stand in line. Free state tax online filing The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Free state tax online filing When you reach the response screen, you can print the entire interview and the final response for your records. Free state tax online filing New subject areas are added on a regular basis. Free state tax online filing  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Free state tax online filing gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Free state tax online filing You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Free state tax online filing The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Free state tax online filing When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Free state tax online filing Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Free state tax online filing You can also ask the IRS to mail a return or an account transcript to you. Free state tax online filing Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Free state tax online filing gov or by calling 1-800-908-9946. Free state tax online filing Tax return and tax account transcripts are generally available for the current year and the past three years. Free state tax online filing Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Free state tax online filing Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Free state tax online filing If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Free state tax online filing Check the status of your amended return using Where's My Amended Return? Go to IRS. Free state tax online filing gov and enter Where's My Amended Return? in the search box. Free state tax online filing You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Free state tax online filing It can take up to 3 weeks from the date you mailed it to show up in our system. Free state tax online filing Make a payment using one of several safe and convenient electronic payment options available on IRS. Free state tax online filing gov. Free state tax online filing Select the Payment tab on the front page of IRS. Free state tax online filing gov for more information. Free state tax online filing Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Free state tax online filing Figure your income tax withholding with the IRS Withholding Calculator on IRS. Free state tax online filing gov. Free state tax online filing Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Free state tax online filing Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Free state tax online filing gov. Free state tax online filing Request an Electronic Filing PIN by going to IRS. Free state tax online filing gov and entering Electronic Filing PIN in the search box. Free state tax online filing Download forms, instructions and publications, including accessible versions for people with disabilities. Free state tax online filing Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Free state tax online filing gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Free state tax online filing An employee can answer questions about your tax account or help you set up a payment plan. Free state tax online filing Before you visit, check the Office Locator on IRS. Free state tax online filing gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Free state tax online filing If you have a special need, such as a disability, you can request an appointment. Free state tax online filing Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Free state tax online filing Apply for an Employer Identification Number (EIN). Free state tax online filing Go to IRS. Free state tax online filing gov and enter Apply for an EIN in the search box. Free state tax online filing Read the Internal Revenue Code, regulations, or other official guidance. Free state tax online filing Read Internal Revenue Bulletins. Free state tax online filing Sign up to receive local and national tax news and more by email. Free state tax online filing Just click on “subscriptions” above the search box on IRS. Free state tax online filing gov and choose from a variety of options. Free state tax online filing    Phone. Free state tax online filing You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Free state tax online filing Download the free IRS2Go app from the iTunes app store or from Google Play. Free state tax online filing Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Free state tax online filing gov, or download the IRS2Go app. Free state tax online filing Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Free state tax online filing The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Free state tax online filing Most VITA and TCE sites offer free electronic filing. Free state tax online filing Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Free state tax online filing Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Free state tax online filing Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. Free state tax online filing If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Free state tax online filing The IRS issues more than 9 out of 10 refunds in less than 21 days. Free state tax online filing Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Free state tax online filing Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. Free state tax online filing The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Free state tax online filing Note, the above information is for our automated hotline. Free state tax online filing Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. Free state tax online filing Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Free state tax online filing You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Free state tax online filing It can take up to 3 weeks from the date you mailed it to show up in our system. Free state tax online filing Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). Free state tax online filing You should receive your order within 10 business days. Free state tax online filing Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. Free state tax online filing If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. Free state tax online filing Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Free state tax online filing The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Free state tax online filing These individuals can also contact the IRS through relay services such as the Federal Relay Service. Free state tax online filing    Walk-in. Free state tax online filing You can find a selection of forms, publications and services — in-person. Free state tax online filing Products. Free state tax online filing You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Free state tax online filing Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Free state tax online filing Services. Free state tax online filing You can walk in to your local TAC for face-to-face tax help. Free state tax online filing An employee can answer questions about your tax account or help you set up a payment plan. Free state tax online filing Before visiting, use the Office Locator tool on IRS. Free state tax online filing gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. Free state tax online filing    Mail. Free state tax online filing You can send your order for forms, instructions, and publications to the address below. Free state tax online filing You should receive a response within 10 business days after your request is received. Free state tax online filing Internal Revenue Service 1201 N. Free state tax online filing Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. Free state tax online filing The Taxpayer Advocate Service (TAS) is your voice at the IRS. Free state tax online filing Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Free state tax online filing   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. Free state tax online filing We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Free state tax online filing You face (or your business is facing) an immediate threat of adverse action. Free state tax online filing You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Free state tax online filing   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Free state tax online filing Here's why we can help: TAS is an independent organization within the IRS. Free state tax online filing Our advocates know how to work with the IRS. Free state tax online filing Our services are free and tailored to meet your needs. Free state tax online filing We have offices in every state, the District of Columbia, and Puerto Rico. Free state tax online filing   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. Free state tax online filing   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Free state tax online filing If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. Free state tax online filing Low Income Taxpayer Clinics. Free state tax online filing   Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Free state tax online filing Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Free state tax online filing Visit Taxpayer Advocate or see IRS Publication 4134, Low Income Taxpayer Clinic List. Free state tax online filing Prev  Up  Next   Home   More Online Publications