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How Can I Amend My 2011 Tax Return

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How Can I Amend My 2011 Tax Return

How can i amend my 2011 tax return Publication 537 - Main Content Table of Contents What Is an Installment Sale?Special rule. How can i amend my 2011 tax return General RulesFiguring Installment Sale Income Reporting Installment Sale Income Other RulesElecting Out of the Installment Method Payments Received or Considered Received Escrow Account Depreciation Recapture Income Sale to a Related Person Like-Kind Exchange Contingent Payment Sale Single Sale of Several Assets Sale of a Business Unstated Interest and Original Issue Discount (OID) Disposition of an Installment Obligation Repossession Interest on Deferred Tax Reporting an Installment SaleRelated person. How can i amend my 2011 tax return Several assets. How can i amend my 2011 tax return Special situations. How can i amend my 2011 tax return Schedule D (Form 1040). How can i amend my 2011 tax return Form 4797. How can i amend my 2011 tax return How To Get Tax Help What Is an Installment Sale? An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. How can i amend my 2011 tax return The rules for installment sales do not apply if you elect not to use the installment method (see Electing Out of the Installment Method under Other Rules, later) or the transaction is one for which the installment method may not apply. How can i amend my 2011 tax return The installment sales method cannot be used for the following. How can i amend my 2011 tax return Sale of inventory. How can i amend my 2011 tax return   The regular sale of inventory of personal property does not qualify as an installment sale even if you receive a payment after the year of sale. How can i amend my 2011 tax return See Sale of a Business under Other Rules, later. How can i amend my 2011 tax return Dealer sales. How can i amend my 2011 tax return   Sales of personal property by a person who regularly sells or otherwise disposes of the same type of personal property on the installment plan are not installment sales. How can i amend my 2011 tax return This rule also applies to real property held for sale to customers in the ordinary course of a trade or business. How can i amend my 2011 tax return However, the rule does not apply to an installment sale of property used or produced in farming. How can i amend my 2011 tax return Special rule. How can i amend my 2011 tax return   Dealers of time-shares and residential lots can treat certain sales as installment sales and report them under the installment method if they elect to pay a special interest charge. How can i amend my 2011 tax return For more information, see section 453(l). How can i amend my 2011 tax return Stock or securities. How can i amend my 2011 tax return   You cannot use the installment method to report gain from the sale of stock or securities traded on an established securities market. How can i amend my 2011 tax return You must report the entire gain on the sale in the year in which the trade date falls. How can i amend my 2011 tax return Installment obligation. How can i amend my 2011 tax return   The buyer's obligation to make future payments to you can be in the form of a deed of trust, note, land contract, mortgage, or other evidence of the buyer's debt to you. How can i amend my 2011 tax return General Rules If a sale qualifies as an installment sale, the gain must be reported under the installment method unless you elect out of using the installment method. How can i amend my 2011 tax return See Electing Out of the Installment Method under Other Rules, later, for information on recognizing the entire gain in the year of sale. How can i amend my 2011 tax return Sale at a loss. How can i amend my 2011 tax return   If your sale results in a loss, you cannot use the installment method. How can i amend my 2011 tax return If the loss is on an installment sale of business or investment property, you can deduct it only in the tax year of sale. How can i amend my 2011 tax return Unstated interest. How can i amend my 2011 tax return   If your sale calls for payments in a later year and the sales contract provides for little or no interest, you may have to figure unstated interest, even if you have a loss. How can i amend my 2011 tax return See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. How can i amend my 2011 tax return Figuring Installment Sale Income You can use the following discussions or Form 6252 to help you determine gross profit, contract price, gross profit percentage, and installment sale income. How can i amend my 2011 tax return Each payment on an installment sale usually consists of the following three parts. How can i amend my 2011 tax return Interest income. How can i amend my 2011 tax return Return of your adjusted basis in the property. How can i amend my 2011 tax return Gain on the sale. How can i amend my 2011 tax return In each year you receive a payment, you must include in income both the interest part and the part that is your gain on the sale. How can i amend my 2011 tax return You do not include in income the part that is the return of your basis in the property. How can i amend my 2011 tax return Basis is the amount of your investment in the property for installment sale purposes. How can i amend my 2011 tax return Interest Income You must report interest as ordinary income. How can i amend my 2011 tax return Interest is generally not included in a down payment. How can i amend my 2011 tax return However, you may have to treat part of each later payment as interest, even if it is not called interest in your agreement with the buyer. How can i amend my 2011 tax return Interest provided in the agreement is called stated interest. How can i amend my 2011 tax return If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. How can i amend my 2011 tax return See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. How can i amend my 2011 tax return Adjusted Basis and Installment Sale Income (Gain on Sale) After you have determined how much of each payment to treat as interest, you treat the rest of each payment as if it were made up of two parts. How can i amend my 2011 tax return A tax-free return of your adjusted basis in the property, and Your gain (referred to as installment sale income on Form 6252). How can i amend my 2011 tax return Figuring adjusted basis for installment sale purposes. How can i amend my 2011 tax return   You can use Worksheet A to figure your adjusted basis in the property for installment sale purposes. How can i amend my 2011 tax return When you have completed the worksheet, you will also have determined the gross profit percentage necessary to figure your installment sale income (gain) for this year. How can i amend my 2011 tax return Worksheet A. How can i amend my 2011 tax return Figuring Adjusted Basis and Gross Profit Percentage 1. How can i amend my 2011 tax return Enter the selling price for the property   2. How can i amend my 2011 tax return Enter your adjusted basis for the property     3. How can i amend my 2011 tax return Enter your selling expenses     4. How can i amend my 2011 tax return Enter any depreciation recapture     5. How can i amend my 2011 tax return Add lines 2, 3, and 4. How can i amend my 2011 tax return  This is your adjusted basis for installment sale purposes   6. How can i amend my 2011 tax return Subtract line 5 from line 1. How can i amend my 2011 tax return If zero or less, enter -0-. How can i amend my 2011 tax return  This is your gross profit     If the amount entered on line 6 is zero, stop here. How can i amend my 2011 tax return You cannot use the installment method. How can i amend my 2011 tax return   7. How can i amend my 2011 tax return Enter the contract price for the property   8. How can i amend my 2011 tax return Divide line 6 by line 7. How can i amend my 2011 tax return This is your gross profit percentage   Selling price. How can i amend my 2011 tax return   The selling price is the total cost of the property to the buyer and includes any of the following. How can i amend my 2011 tax return Any money you are to receive. How can i amend my 2011 tax return The fair market value (FMV) of any property you are to receive (FMV is discussed in Property Used As a Payment under Other Rules, later). How can i amend my 2011 tax return Any existing mortgage or other debt the buyer pays, assumes, or takes (a note, mortgage, or any other liability, such as a lien, accrued interest, or taxes you owe on the property). How can i amend my 2011 tax return Any of your selling expenses the buyer pays. How can i amend my 2011 tax return   Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. How can i amend my 2011 tax return Adjusted basis for installment sale purposes. How can i amend my 2011 tax return   Your adjusted basis is the total of the following three items. How can i amend my 2011 tax return Adjusted basis. How can i amend my 2011 tax return Selling expenses. How can i amend my 2011 tax return Depreciation recapture. How can i amend my 2011 tax return Adjusted basis. How can i amend my 2011 tax return   Basis is your investment in the property for installment sale purposes. How can i amend my 2011 tax return The way you figure basis depends on how you acquire the property. How can i amend my 2011 tax return The basis of property you buy is generally its cost. How can i amend my 2011 tax return The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. How can i amend my 2011 tax return   While you own property, various events may change your original basis. How can i amend my 2011 tax return Some events, such as adding rooms or making permanent improvements, increase basis. How can i amend my 2011 tax return Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. How can i amend my 2011 tax return The result is adjusted basis. How can i amend my 2011 tax return   For more information on how to figure basis and adjusted basis, see Publication 551. How can i amend my 2011 tax return For more information regarding your basis in property you inherited from someone who died in 2010 and whose executor filed Form 8939, Allocation of Increase In Basis for Property Acquired From a Decedent, see Publication 4895. How can i amend my 2011 tax return Selling expenses. How can i amend my 2011 tax return   Selling expenses relate to the sale of the property. How can i amend my 2011 tax return They include commissions, attorney fees, and any other expenses paid on the sale. How can i amend my 2011 tax return Selling expenses are added to the basis of the sold property. How can i amend my 2011 tax return Depreciation recapture. How can i amend my 2011 tax return   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. How can i amend my 2011 tax return See Depreciation Recapture Income under Other Rules, later. How can i amend my 2011 tax return Gross profit. How can i amend my 2011 tax return   Gross profit is the total gain you report on the installment method. How can i amend my 2011 tax return   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. How can i amend my 2011 tax return If the property you sold was your home, subtract from the gross profit any gain you can exclude. How can i amend my 2011 tax return See Sale of Your Home , later, under Reporting Installment Sale Income. How can i amend my 2011 tax return Contract price. How can i amend my 2011 tax return   Contract price equals: The selling price, minus The mortgages, debts, and other liabilities assumed or taken by the buyer, plus The amount by which the mortgages, debts, and other liabilities assumed or taken by the buyer exceed your adjusted basis for installment sale purposes. How can i amend my 2011 tax return Gross profit percentage. How can i amend my 2011 tax return   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. How can i amend my 2011 tax return This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. How can i amend my 2011 tax return   The gross profit percentage generally remains the same for each payment you receive. How can i amend my 2011 tax return However, see the Example under Selling Price Reduced, later, for a situation where the gross profit percentage changes. How can i amend my 2011 tax return Example. How can i amend my 2011 tax return You sell property at a contract price of $6,000 and your gross profit is $1,500. How can i amend my 2011 tax return Your gross profit percentage is 25% ($1,500 ÷ $6,000). How can i amend my 2011 tax return After subtracting interest, you report 25% of each payment, including the down payment, as installment sale income from the sale for the tax year you receive the payment. How can i amend my 2011 tax return The remainder (balance) of each payment is the tax-free return of your adjusted basis. How can i amend my 2011 tax return Amount to report as installment sale income. How can i amend my 2011 tax return   Multiply the payments you receive each year (less interest) by the gross profit percentage. How can i amend my 2011 tax return The result is your installment sale income for the tax year. How can i amend my 2011 tax return In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. How can i amend my 2011 tax return A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. How can i amend my 2011 tax return For a detailed discussion, see Payments Received or Considered Received under Other Rules, later. How can i amend my 2011 tax return Selling Price Reduced If the selling price is reduced at a later date, the gross profit on the sale also will change. How can i amend my 2011 tax return You then must refigure the gross profit percentage for the remaining payments. How can i amend my 2011 tax return Refigure your gross profit using Worksheet B. How can i amend my 2011 tax return You will spread any remaining gain over future installments. How can i amend my 2011 tax return Worksheet B. How can i amend my 2011 tax return New Gross Profit Percentage — Selling Price Reduced 1. How can i amend my 2011 tax return Enter the reduced selling  price for the property   2. How can i amend my 2011 tax return Enter your adjusted  basis for the  property     3. How can i amend my 2011 tax return Enter your selling  expenses     4. How can i amend my 2011 tax return Enter any depreciation  recapture     5. How can i amend my 2011 tax return Add lines 2, 3, and 4. How can i amend my 2011 tax return   6. How can i amend my 2011 tax return Subtract line 5 from line 1. How can i amend my 2011 tax return  This is your adjusted  gross profit   7. How can i amend my 2011 tax return Enter any installment sale  income reported in  prior year(s)   8. How can i amend my 2011 tax return Subtract line 7 from line 6   9. How can i amend my 2011 tax return Future installments   10. How can i amend my 2011 tax return Divide line 8 by line 9. How can i amend my 2011 tax return  This is your new gross profit percentage*   * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. How can i amend my 2011 tax return Example. How can i amend my 2011 tax return In 2011, you sold land with a basis of $40,000 for $100,000. How can i amend my 2011 tax return Your gross profit was $60,000. How can i amend my 2011 tax return You received a $20,000 down payment and the buyer's note for $80,000. How can i amend my 2011 tax return The note provides for four annual payments of $20,000 each, plus 8% interest, beginning in 2012. How can i amend my 2011 tax return Your gross profit percentage is 60%. How can i amend my 2011 tax return You reported a gain of $12,000 on each payment received in 2011 and 2012. How can i amend my 2011 tax return In 2013, you and the buyer agreed to reduce the purchase price to $85,000 and payments during 2013, 2014, and 2015 are reduced to $15,000 for each year. How can i amend my 2011 tax return The new gross profit percentage, 46. How can i amend my 2011 tax return 67%, is figured on Example—Worksheet B. How can i amend my 2011 tax return You will report a gain of $7,000 (46. How can i amend my 2011 tax return 67% of $15,000) on each of the $15,000 installments due in 2013, 2014, and 2015. How can i amend my 2011 tax return Example — Worksheet B. How can i amend my 2011 tax return New Gross Profit Percentage — Selling Price Reduced 1. How can i amend my 2011 tax return Enter the reduced selling  price for the property 85,000 2. How can i amend my 2011 tax return Enter your adjusted  basis for the  property 40,000   3. How can i amend my 2011 tax return Enter your selling  expenses -0-   4. How can i amend my 2011 tax return Enter any depreciation  recapture -0-   5. How can i amend my 2011 tax return Add lines 2, 3, and 4. How can i amend my 2011 tax return 40,000 6. How can i amend my 2011 tax return Subtract line 5 from line 1. How can i amend my 2011 tax return  This is your adjusted  gross profit 45,000 7. How can i amend my 2011 tax return Enter any installment sale  income reported in  prior year(s) 24,000 8. How can i amend my 2011 tax return Subtract line 7 from line 6 21,000 9. How can i amend my 2011 tax return Future installments 45,000 10. How can i amend my 2011 tax return Divide line 8 by line 9. How can i amend my 2011 tax return  This is your new gross profit percentage* 46. How can i amend my 2011 tax return 67% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. How can i amend my 2011 tax return Reporting Installment Sale Income Generally, you will use Form 6252 to report installment sale income from casual sales of real or personal property during the tax year. How can i amend my 2011 tax return You also will have to report the installment sale income on Schedule D (Form 1040), Capital Gains and Losses, or Form 4797, or both. How can i amend my 2011 tax return See Schedule D (Form 1040) and Form 4797 , later. How can i amend my 2011 tax return If the property was your main home, you may be able to exclude part or all of the gain. How can i amend my 2011 tax return See Sale of Your Home , later. How can i amend my 2011 tax return Form 6252 Use Form 6252 to report an installment sale in the year it takes place and to report payments received, or considered received because of related party resales, in later years. How can i amend my 2011 tax return Attach it to your tax return for each year. How can i amend my 2011 tax return Form 6252 will help you determine the gross profit, contract price, gross profit percentage, and installment sale income. How can i amend my 2011 tax return Which parts to complete. How can i amend my 2011 tax return   Which part to complete depends on whether you are filing the form for the year of sale or a later year. How can i amend my 2011 tax return Year of sale. How can i amend my 2011 tax return   Complete lines 1 through 4, Part I, and Part II. How can i amend my 2011 tax return If you sold property to a related party during the year, also complete Part III. How can i amend my 2011 tax return Later years. How can i amend my 2011 tax return   Complete lines 1 through 4 and Part II for any year in which you receive a payment from an installment sale. How can i amend my 2011 tax return   If you sold a marketable security to a related party after May 14, 1980, and before January 1, 1987, complete Form 6252 for each year of the installment agreement, even if you did not receive a payment. How can i amend my 2011 tax return (After December 31, 1986, the installment method is not available for the sale of marketable securities. How can i amend my 2011 tax return ) Complete lines 1 through 4 and Part II for any year in which you receive a payment from the sale. How can i amend my 2011 tax return Complete Part III unless you received the final payment during the tax year. How can i amend my 2011 tax return   If you sold property other than a marketable security to a related party after May 14, 1980, complete Form 6252 for the year of sale and for 2 years after the year of sale, even if you did not receive a payment. How can i amend my 2011 tax return Complete lines 1 through 4 and Part II for any year during this 2-year period in which you receive a payment from the sale. How can i amend my 2011 tax return Complete Part III for the 2 years after the year of sale unless you received the final payment during the tax year. How can i amend my 2011 tax return Schedule D (Form 1040) Enter the gain figured on Form 6252 (line 26) for personal-use property (capital assets) on Schedule D (Form 1040), as a short-term gain (line 4) or long-term gain (line 11). How can i amend my 2011 tax return If your gain from the installment sale qualifies for long-term capital gain treatment in the year of sale, it will continue to qualify in later tax years. How can i amend my 2011 tax return Your gain is long-term if you owned the property for more than 1 year when you sold it. How can i amend my 2011 tax return Form 4797 An installment sale of property used in your business or that earns rent or royalty income may result in a capital gain, an ordinary gain, or both. How can i amend my 2011 tax return All or part of any gain from the disposition of the property may be ordinary gain from depreciation recapture. How can i amend my 2011 tax return For trade or business property held for more than 1 year, enter the amount from line 26 of Form 6252 on Form 4797, line 4. How can i amend my 2011 tax return If the property was held 1 year or less or you have an ordinary gain from the sale of a noncapital asset (even if the holding period is more than 1 year), enter this amount on Form 4797, line 10, and write “From Form 6252. How can i amend my 2011 tax return ” Sale of Your Home If you sell your home, you may be able to exclude all or part of the gain on the sale. How can i amend my 2011 tax return See Publication 523 for information about excluding the gain. How can i amend my 2011 tax return If the sale is an installment sale, any gain you exclude is not included in gross profit when figuring your gross profit percentage. How can i amend my 2011 tax return Seller-financed mortgage. How can i amend my 2011 tax return   If you finance the sale of your home to an individual, both you and the buyer may have to follow special reporting procedures. How can i amend my 2011 tax return   When you report interest income received from a buyer who uses the property as a personal residence, write the buyer's name, address, and social security number (SSN) on line 1 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. How can i amend my 2011 tax return   When deducting the mortgage interest, the buyer must write your name, address, and SSN on line 11 of Schedule A (Form 1040), Itemized Deductions. How can i amend my 2011 tax return   If either person fails to include the other person's SSN, a $50 penalty will be assessed. How can i amend my 2011 tax return Other Rules The rules discussed in this part of the publication apply only in certain circumstances or to certain types of property. How can i amend my 2011 tax return The following topics are discussed. How can i amend my 2011 tax return Electing out of the installment method. How can i amend my 2011 tax return Payments received or considered received. How can i amend my 2011 tax return Escrow account. How can i amend my 2011 tax return Depreciation recapture income. How can i amend my 2011 tax return Sale to a related person. How can i amend my 2011 tax return Like-kind exchange. How can i amend my 2011 tax return Contingent payment sale. How can i amend my 2011 tax return Single sale of several assets. How can i amend my 2011 tax return Sale of a business. How can i amend my 2011 tax return Unstated interest and original issue discount. How can i amend my 2011 tax return Disposition of an installment obligation. How can i amend my 2011 tax return Repossession. How can i amend my 2011 tax return Interest on deferred tax. How can i amend my 2011 tax return Electing Out of the Installment Method If you elect not to use the installment method, you generally report the entire gain in the year of sale, even though you do not receive all the sale proceeds in that year. How can i amend my 2011 tax return To figure the amount of gain to report, use the fair market value (FMV) of the buyer's installment obligation that represents the buyer's debt to you. How can i amend my 2011 tax return Notes, mortgages, and land contracts are examples of obligations that are included at FMV. How can i amend my 2011 tax return You must figure the FMV of the buyer's installment obligation, whether or not you would actually be able to sell it. How can i amend my 2011 tax return If you use the cash method of accounting, the FMV of the obligation will never be considered to be less than the FMV of the property sold (minus any other consideration received). How can i amend my 2011 tax return Example. How can i amend my 2011 tax return You sold a parcel of land for $50,000. How can i amend my 2011 tax return You received a $10,000 down payment and will receive the balance over the next 10 years at $4,000 a year, plus 8% interest. How can i amend my 2011 tax return The buyer gave you a note for $40,000. How can i amend my 2011 tax return The note had an FMV of $40,000. How can i amend my 2011 tax return You paid a commission of 6%, or $3,000, to a broker for negotiating the sale. How can i amend my 2011 tax return The land cost $25,000, and you owned it for more than one year. How can i amend my 2011 tax return You decide to elect out of the installment method and report the entire gain in the year of sale. How can i amend my 2011 tax return Gain realized:     Selling price $50,000 Minus: Property's adj. How can i amend my 2011 tax return basis $25,000     Commission 3,000 28,000 Gain realized $22,000 Gain recognized in year of sale:   Cash $10,000 Market value of note 40,000 Total realized in year of sale $50,000 Minus: Property's adj. How can i amend my 2011 tax return basis $25,000     Commission 3,000 28,000 Gain recognized $22,000 The recognized gain of $22,000 is long-term capital gain. How can i amend my 2011 tax return You include the entire gain in income in the year of sale, so you do not include in income any principal payments you receive in later tax years. How can i amend my 2011 tax return The interest on the note is ordinary income and is reported as interest income each year. How can i amend my 2011 tax return How to elect out. How can i amend my 2011 tax return   To make this election, do not report your sale on Form 6252. How can i amend my 2011 tax return Instead, report it on Form 8949, Sales and Other Dispositions of Capital Assets, Form 4797, or both. How can i amend my 2011 tax return When to elect out. How can i amend my 2011 tax return   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. How can i amend my 2011 tax return Automatic six-month extension. How can i amend my 2011 tax return   If you timely file your tax return without making the election, you still can make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). How can i amend my 2011 tax return Write “Filed pursuant to section 301. How can i amend my 2011 tax return 9100-2” at the top of the amended return and file it where the original return was filed. How can i amend my 2011 tax return Revoking the election. How can i amend my 2011 tax return   Once made, the election can be revoked only with IRS approval. How can i amend my 2011 tax return A revocation is retroactive. How can i amend my 2011 tax return You will not be allowed to revoke the election if either of the following applies. How can i amend my 2011 tax return One of the purposes is to avoid federal income tax. How can i amend my 2011 tax return The tax year in which any payment was received has closed. How can i amend my 2011 tax return Payments Received or Considered Received You must figure your gain each year on the payments you receive, or are treated as receiving, from an installment sale. How can i amend my 2011 tax return In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. How can i amend my 2011 tax return These situations occur when the buyer assumes or pays any of your debts, such as a loan, or pays any of your expenses, such as a sales commission. How can i amend my 2011 tax return However, as discussed later, the buyer's assumption of your debt is treated as a recovery of your basis rather than as a payment in many cases. How can i amend my 2011 tax return Buyer Pays Seller's Expenses If the buyer pays any of your expenses related to the sale of your property, it is considered a payment to you in the year of sale. How can i amend my 2011 tax return Include these expenses in the selling and contract prices when figuring the gross profit percentage. How can i amend my 2011 tax return Buyer Assumes Mortgage If the buyer assumes or pays off your mortgage, or otherwise takes the property subject to the mortgage, the following rules apply. How can i amend my 2011 tax return Mortgage not more than basis. How can i amend my 2011 tax return   If the buyer assumes a mortgage that is not more than your installment sale basis in the property, it is not considered a payment to you. How can i amend my 2011 tax return It is considered a recovery of your basis. How can i amend my 2011 tax return The contract price is the selling price minus the mortgage. How can i amend my 2011 tax return Example. How can i amend my 2011 tax return You sell property with an adjusted basis of $19,000. How can i amend my 2011 tax return You have selling expenses of $1,000. How can i amend my 2011 tax return The buyer assumes your existing mortgage of $15,000 and agrees to pay you $10,000 (a cash down payment of $2,000 and $2,000 (plus 12% interest) in each of the next 4 years). How can i amend my 2011 tax return The selling price is $25,000 ($15,000 + $10,000). How can i amend my 2011 tax return Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). How can i amend my 2011 tax return The contract price is $10,000 ($25,000 − $15,000 mortgage). How can i amend my 2011 tax return Your gross profit percentage is 50% ($5,000 ÷ $10,000). How can i amend my 2011 tax return You report half of each $2,000 payment received as gain from the sale. How can i amend my 2011 tax return You also report all interest you receive as ordinary income. How can i amend my 2011 tax return Mortgage more than basis. How can i amend my 2011 tax return   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. How can i amend my 2011 tax return The part of the mortgage greater than your basis is treated as a payment received in the year of sale. How can i amend my 2011 tax return   To figure the contract price, subtract the mortgage from the selling price. How can i amend my 2011 tax return This is the total amount (other than interest) you will receive directly from the buyer. How can i amend my 2011 tax return Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). How can i amend my 2011 tax return The contract price is then the same as your gross profit from the sale. How can i amend my 2011 tax return    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. How can i amend my 2011 tax return Example. How can i amend my 2011 tax return The selling price for your property is $9,000. How can i amend my 2011 tax return The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. How can i amend my 2011 tax return Your adjusted basis in the property is $4,400. How can i amend my 2011 tax return You have selling expenses of $600, for a total installment sale basis of $5,000. How can i amend my 2011 tax return The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). How can i amend my 2011 tax return This amount is included in the contract price and treated as a payment received in the year of sale. How can i amend my 2011 tax return The contract price is $4,000: Selling price $9,000 Minus: Mortgage (6,000) Amount actually received $3,000 Add difference:   Mortgage $6,000   Minus: Installment sale basis 5,000 1,000 Contract price $4,000       Your gross profit on the sale is also $4,000: Selling price $9,000 Minus: Installment sale basis (5,000) Gross profit $4,000 Your gross profit percentage is 100%. How can i amend my 2011 tax return Report 100% of each payment (less interest) as gain from the sale. How can i amend my 2011 tax return Treat the $1,000 difference between the mortgage and your installment sale basis as a payment and report 100% of it as gain in the year of sale. How can i amend my 2011 tax return Mortgage Canceled If the buyer of your property is the person who holds the mortgage on it, your debt is canceled, not assumed. How can i amend my 2011 tax return You are considered to receive a payment equal to the outstanding canceled debt. How can i amend my 2011 tax return Example. How can i amend my 2011 tax return Mary Jones loaned you $45,000 in 2009 in exchange for a note and a mortgage in a tract of land you owned. How can i amend my 2011 tax return On April 4, 2013, she bought the land for $70,000. How can i amend my 2011 tax return At that time, $30,000 of her loan to you was outstanding. How can i amend my 2011 tax return She agreed to forgive this $30,000 debt and to pay you $20,000 (plus interest) on August 1, 2013, and $20,000 on August 1, 2014. How can i amend my 2011 tax return She did not assume an existing mortgage. How can i amend my 2011 tax return She canceled the $30,000 debt you owed her. How can i amend my 2011 tax return You are considered to have received a $30,000 payment at the time of the sale. How can i amend my 2011 tax return Buyer Assumes Other Debts If the buyer assumes any other debts, such as a loan or back taxes, it may be considered a payment to you in the year of sale. How can i amend my 2011 tax return If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. How can i amend my 2011 tax return Compare the debt to your installment sale basis in the property being sold. How can i amend my 2011 tax return If the debt is less than your installment sale basis, none of it is treated as a payment. How can i amend my 2011 tax return If it is more, only the difference is treated as a payment. How can i amend my 2011 tax return If the buyer assumes more than one debt, any part of the total that is more than your installment sale basis is considered a payment. How can i amend my 2011 tax return These rules are the same as the rules discussed earlier under Buyer Assumes Mortgage . How can i amend my 2011 tax return However, they apply only to the following types of debt the buyer assumes. How can i amend my 2011 tax return Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. How can i amend my 2011 tax return Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. How can i amend my 2011 tax return If the buyer assumes any other type of debt, such as a personal loan or your legal fees relating to the sale, it is treated as if the buyer had paid off the debt at the time of the sale. How can i amend my 2011 tax return The value of the assumed debt is then considered a payment to you in the year of sale. How can i amend my 2011 tax return Property Used As a Payment If you receive property other than money from the buyer, it is still considered a payment in the year received. How can i amend my 2011 tax return However, see Like-Kind Exchange , later. How can i amend my 2011 tax return Generally, the amount of the payment is the property's FMV on the date you receive it. How can i amend my 2011 tax return Exception. How can i amend my 2011 tax return   If the property the buyer gives you is payable on demand or readily tradable, the amount you should consider as payment in the year received is: The FMV of the property on the date you receive it if you use the cash method of accounting, The face amount of the obligation on the date you receive it if you use the accrual method of accounting, or The stated redemption price at maturity less any original issue discount (OID) or, if there is no OID, the stated redemption price at maturity appropriately discounted to reflect total unstated interest. How can i amend my 2011 tax return See Unstated Interest and Original Issue Discount (OID) , later. How can i amend my 2011 tax return Debt not payable on demand. How can i amend my 2011 tax return   Any evidence of debt you receive from the buyer not payable on demand is not considered a payment. How can i amend my 2011 tax return This is true even if the debt is guaranteed by a third party, including a government agency. How can i amend my 2011 tax return Fair market value (FMV). How can i amend my 2011 tax return   This is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having a reasonable knowledge of all the necessary facts. How can i amend my 2011 tax return Third-party note. How can i amend my 2011 tax return   If the property the buyer gives you is a third-party note (or other obligation of a third party), you are considered to have received a payment equal to the note's FMV. How can i amend my 2011 tax return Because the FMV of the note is itself a payment on your installment sale, any payments you later receive from the third party are not considered payments on the sale. How can i amend my 2011 tax return The excess of the note's face value over its FMV is interest. How can i amend my 2011 tax return Exclude this interest in determining the selling price of the property. How can i amend my 2011 tax return However, see Exception under Property Used As a Payment, earlier. How can i amend my 2011 tax return Example. How can i amend my 2011 tax return You sold real estate in an installment sale. How can i amend my 2011 tax return As part of the down payment, the buyer assigned to you a $50,000, 8% interest third-party note. How can i amend my 2011 tax return The FMV of the third-party note at the time of the sale was $30,000. How can i amend my 2011 tax return This amount, not $50,000, is a payment to you in the year of sale. How can i amend my 2011 tax return The third-party note had an FMV equal to 60% of its face value ($30,000 ÷ $50,000), so 60% of each principal payment you receive on this note is a nontaxable return of capital. How can i amend my 2011 tax return The remaining 40% is interest taxed as ordinary income. How can i amend my 2011 tax return Bond. How can i amend my 2011 tax return   A bond or other evidence of debt you receive from the buyer that is payable on demand or readily tradable in an established securities market is treated as a payment in the year you receive it. How can i amend my 2011 tax return For more information on the amount you should treat as a payment, see Exception under Property Used As a Payment, earlier. How can i amend my 2011 tax return    If you receive a government or corporate bond for a sale before October 22, 2004, and the bond has interest coupons attached or can be readily traded in an established securities market, you are considered to have received payment equal to the bond's FMV. How can i amend my 2011 tax return However, see Exception under Property Used As a Payment, earlier. How can i amend my 2011 tax return Buyer's note. How can i amend my 2011 tax return   The buyer's note (unless payable on demand) is not considered payment on the sale. How can i amend my 2011 tax return However, its full face value is included when figuring the selling price and the contract price. How can i amend my 2011 tax return Payments you receive on the note are used to figure your gain in the year received. How can i amend my 2011 tax return Installment Obligation Used as Security (Pledge Rule) If you use an installment obligation to secure any debt, the net proceeds from the debt may be treated as a payment on the installment obligation. How can i amend my 2011 tax return This is known as the pledge rule, and it applies if the selling price of the property is over $150,000. How can i amend my 2011 tax return It does not apply to the following dispositions. How can i amend my 2011 tax return Sales of property used or produced in farming. How can i amend my 2011 tax return Sales of personal-use property. How can i amend my 2011 tax return Qualifying sales of time-shares and residential lots. How can i amend my 2011 tax return The net debt proceeds are the gross debt minus the direct expenses of getting the debt. How can i amend my 2011 tax return The amount treated as a payment is considered received on the later of the following dates. How can i amend my 2011 tax return The date the debt becomes secured. How can i amend my 2011 tax return The date you receive the debt proceeds. How can i amend my 2011 tax return A debt is secured by an installment obligation to the extent that payment of principal or interest on the debt is directly secured (under the terms of the loan or any underlying arrangement) by any interest in the installment obligation. How can i amend my 2011 tax return For sales after December 16, 1999, payment on a debt is treated as directly secured by an interest in an installment obligation to the extent an arrangement allows you to satisfy all or part of the debt with the installment obligation. How can i amend my 2011 tax return Limit. How can i amend my 2011 tax return   The net debt proceeds treated as a payment on the pledged installment obligation cannot be more than the excess of item (1) over item (2), below. How can i amend my 2011 tax return The total contract price on the installment sale. How can i amend my 2011 tax return Any payments received on the installment obligation before the date the net debt proceeds are treated as a payment. How can i amend my 2011 tax return Installment payments. How can i amend my 2011 tax return   The pledge rule accelerates the reporting of the installment obligation payments. How can i amend my 2011 tax return Do not report payments received on the obligation after it has been pledged until the payments received exceed the amount reported under the pledge rule. How can i amend my 2011 tax return Exception. How can i amend my 2011 tax return   The pledge rule does not apply to pledges made after December 17, 1987, to refinance a debt under the following circumstances. How can i amend my 2011 tax return The debt was outstanding on December 17, 1987. How can i amend my 2011 tax return The debt was secured by that installment sale obligation on that date and at all times thereafter until the refinancing occurred. How can i amend my 2011 tax return   A refinancing as a result of the creditor's calling of the debt is treated as a continuation of the original debt so long as a person other than the creditor or a person related to the creditor provides the refinancing. How can i amend my 2011 tax return   This exception applies only to refinancing that does not exceed the principal of the original debt immediately before the refinancing. How can i amend my 2011 tax return Any excess is treated as a payment on the installment obligation. How can i amend my 2011 tax return Escrow Account In some cases, the sales agreement or a later agreement may call for the buyer to establish an irrevocable escrow account from which the remaining installment payments (including interest) are to be made. How can i amend my 2011 tax return These sales cannot be reported on the installment method. How can i amend my 2011 tax return The buyer's obligation is paid in full when the balance of the purchase price is deposited into the escrow account. How can i amend my 2011 tax return When an escrow account is established, you no longer rely on the buyer for the rest of the payments, but on the escrow arrangement. How can i amend my 2011 tax return Example. How can i amend my 2011 tax return You sell property for $100,000. How can i amend my 2011 tax return The sales agreement calls for a down payment of $10,000 and payment of $15,000 in each of the next 6 years to be made from an irrevocable escrow account containing the balance of the purchase price plus interest. How can i amend my 2011 tax return You cannot report the sale on the installment method because the full purchase price is considered received in the year of sale. How can i amend my 2011 tax return You report the entire gain in the year of sale. How can i amend my 2011 tax return Escrow established in a later year. How can i amend my 2011 tax return   If you make an installment sale and in a later year an irrevocable escrow account is established to pay the remaining installments plus interest, the amount placed in the escrow account represents payment of the balance of the installment obligation. How can i amend my 2011 tax return Substantial restriction. How can i amend my 2011 tax return   If an escrow arrangement imposes a substantial restriction on your right to receive the sale proceeds, the sale can be reported on the installment method, provided it otherwise qualifies. How can i amend my 2011 tax return For an escrow arrangement to impose a substantial restriction, it must serve a bona fide purpose of the buyer, that is, a real and definite restriction placed on the seller or a specific economic benefit conferred on the buyer. How can i amend my 2011 tax return Depreciation Recapture Income If you sell property for which you claimed or could have claimed a depreciation deduction, you must report any depreciation recapture income in the year of sale, whether or not an installment payment was received that year. How can i amend my 2011 tax return Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. How can i amend my 2011 tax return Report the recapture income in Part II of Form 4797 as ordinary income in the year of sale. How can i amend my 2011 tax return The recapture income is also included in Part I of Form 6252. How can i amend my 2011 tax return However, the gain equal to the recapture income is reported in full in the year of the sale. How can i amend my 2011 tax return Only the gain greater than the recapture income is reported on the installment method. How can i amend my 2011 tax return For more information on depreciation recapture, see chapter 3 in Publication 544. How can i amend my 2011 tax return The recapture income reported in the year of sale is included in your installment sale basis in determining your gross profit on the installment sale. How can i amend my 2011 tax return Determining gross profit is discussed under General Rules , earlier. How can i amend my 2011 tax return Sale to a Related Person If you sell depreciable property to a related person and the sale is an installment sale, you may not be able to report the sale using the installment method. How can i amend my 2011 tax return If you sell property to a related person and the related person disposes of the property before you receive all payments with respect to the sale, you may have to treat the amount realized by the related person as received by you when the related person disposes of the property. How can i amend my 2011 tax return These rules are explained under Sale of Depreciable Property and under Sale and Later Disposition , later. How can i amend my 2011 tax return Sale of Depreciable Property If you sell depreciable property to certain related persons, you generally cannot report the sale using the installment method. How can i amend my 2011 tax return Instead, all payments to be received are considered received in the year of sale. How can i amend my 2011 tax return However, see Exception , below. How can i amend my 2011 tax return Depreciable property for this rule is any property the purchaser can depreciate. How can i amend my 2011 tax return Payments to be received include the total of all noncontingent payments and the FMV of any payments contingent as to amount. How can i amend my 2011 tax return In the case of contingent payments for which the FMV cannot be reasonably determined, your basis in the property is recovered proportionately. How can i amend my 2011 tax return The purchaser cannot increase the basis of the property acquired in the sale before the seller includes a like amount in income. How can i amend my 2011 tax return Exception. How can i amend my 2011 tax return   You can use the installment method to report a sale of depreciable property to a related person if no significant tax deferral benefit will be derived from the sale. How can i amend my 2011 tax return You must show to the satisfaction of the IRS that avoidance of federal income tax was not one of the principal purposes of the sale. How can i amend my 2011 tax return Related person. How can i amend my 2011 tax return   Related persons include the following. How can i amend my 2011 tax return A person and all controlled entities with respect to that person. How can i amend my 2011 tax return A taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless that beneficiary's interest in the trust is a remote contingent interest. How can i amend my 2011 tax return Except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of that estate. How can i amend my 2011 tax return Two or more partnerships in which the same person owns, directly or indirectly, more than 50% of the capital interests or the profits interests. How can i amend my 2011 tax return   For information about which entities are controlled entities, see section 1239(c). How can i amend my 2011 tax return Sale and Later Disposition Generally, a special rule applies if you sell or exchange property to a related person on the installment method (first disposition) who then sells, exchanges, or gives away the property (second disposition) under the following circumstances. How can i amend my 2011 tax return The related person makes the second disposition before making all payments on the first disposition. How can i amend my 2011 tax return The related person disposes of the property within 2 years of the first disposition. How can i amend my 2011 tax return This rule does not apply if the property involved is marketable securities. How can i amend my 2011 tax return Under this rule, you treat part or all of the amount the related person realizes (or the FMV if the disposed property is not sold or exchanged) from the second disposition as if you received it at the time of the second disposition. How can i amend my 2011 tax return See Exception , later. How can i amend my 2011 tax return Related person. How can i amend my 2011 tax return   Related persons include the following. How can i amend my 2011 tax return Members of a family, including only brothers and sisters (either whole or half), husband and wife, ancestors, and lineal descendants. How can i amend my 2011 tax return A partnership or estate and a partner or beneficiary. How can i amend my 2011 tax return A trust (other than a section 401(a) employees trust) and a beneficiary. How can i amend my 2011 tax return A trust and an owner of the trust. How can i amend my 2011 tax return Two corporations that are members of the same controlled group as defined in section 267(f). How can i amend my 2011 tax return The fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. How can i amend my 2011 tax return A tax-exempt educational or charitable organization and a person (if an individual, including members of the individual's family) who directly or indirectly controls such an organization. How can i amend my 2011 tax return An individual and a corporation when the individual owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. How can i amend my 2011 tax return A fiduciary of a trust and a corporation when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. How can i amend my 2011 tax return The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. How can i amend my 2011 tax return Any two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. How can i amend my 2011 tax return An S corporation and a corporation that is not an S corporation if the same persons own more than 50% in value of the outstanding stock of each corporation. How can i amend my 2011 tax return A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. How can i amend my 2011 tax return An executor and a beneficiary of an estate unless the sale is in satisfaction of a pecuniary bequest. How can i amend my 2011 tax return Example 1. How can i amend my 2011 tax return In 2012, Harvey Green sold farm land to his son Bob for $500,000, which was to be paid in five equal payments over 5 years, plus adequate stated interest on the balance due. How can i amend my 2011 tax return His installment sale basis for the farm land was $250,000 and the property was not subject to any outstanding liens or mortgages. How can i amend my 2011 tax return His gross profit percentage is 50% (gross profit of $250,000 ÷ contract price of $500,000). How can i amend my 2011 tax return He received $100,000 in 2012 and included $50,000 in income for that year ($100,000 × 0. How can i amend my 2011 tax return 50). How can i amend my 2011 tax return Bob made no improvements to the property and sold it to Alfalfa Inc. How can i amend my 2011 tax return , in 2013 for $600,000 after making the payment for that year. How can i amend my 2011 tax return The amount realized from the second disposition is $600,000. How can i amend my 2011 tax return Harvey figures his installment sale income for 2013 as follows: Lesser of: 1) Amount realized on second disposition, or 2) Contract price on first disposition $500,000 Subtract: Sum of payments from Bob in 2012 and 2013 - 200,000 Amount treated as received because of second disposition $300,000 Add: Payment from Bob in 2013 + 100,000 Total payments received and treated as received for 2013 $400,000 Multiply by gross profit % × . How can i amend my 2011 tax return 50 Installment sale income for 2013 $200,000 Harvey will not include in his installment sale income any principal payments he receives on the installment obligation for 2014, 2015, and 2016 because he has already reported the total payments of $500,000 from the first disposition ($100,000 in 2012 and $400,000 in 2013). How can i amend my 2011 tax return Example 2. How can i amend my 2011 tax return Assume the facts are the same as Example 1 except that Bob sells the property for only $400,000. How can i amend my 2011 tax return The gain for 2013 is figured as follows: Lesser of: 1) Amount realized on second disposition, or 2) Contract price on first disposition $400,000 Subtract: Sum of payments from Bob in 2012 and 2013 − 200,000 Amount treated as received because of second disposition $200,000 Add: Payment from Bob in 2013 + 100,000 Total payments received and treated as received for 2013 $300,000 Multiply by gross profit % × . How can i amend my 2011 tax return 50 Installment sale income for 2013 $150,000     Harvey receives a $100,000 payment in 2014 and another in 2015. How can i amend my 2011 tax return They are not taxed because he treated the $200,000 from the disposition in 2013 as a payment received and paid tax on the installment sale income. How can i amend my 2011 tax return In 2016, he receives the final $100,000 payment. How can i amend my 2011 tax return He figures the installment sale income he must recognize in 2016 as follows: Total payments from the first disposition received by the end of 2016 $500,000 Minus the sum of:     Payment from 2012 $100,000   Payment from 2013 100,000   Amount treated as received in 2013 200,000   Total on which gain was previously recognized  − 400,000 Payment on which gain is recognized for 2016  $100,000 Multiply by gross profit % × . How can i amend my 2011 tax return 50 Installment sale income for 2016 $ 50,000 Exception. How can i amend my 2011 tax return   This rule does not apply to a second disposition, and any later transfer, if you can show to the satisfaction of the IRS that neither the first disposition (to the related person) nor the second disposition had as one of its principal purposes the avoidance of federal income tax. How can i amend my 2011 tax return Generally, an involuntary second disposition will qualify under the nontax avoidance exception, such as when a creditor of the related person forecloses on the property or the related person declares bankruptcy. How can i amend my 2011 tax return   The nontax avoidance exception also applies to a second disposition that is also an installment sale if the terms of payment under the installment resale are substantially equal to or longer than those for the first installment sale. How can i amend my 2011 tax return However, the exception does not apply if the resale terms permit significant deferral of recognition of gain from the first sale. How can i amend my 2011 tax return   In addition, any sale or exchange of stock to the issuing corporation is not treated as a first disposition. How can i amend my 2011 tax return An involuntary conversion is not treated as a second disposition if the first disposition occurred before the threat of conversion. How can i amend my 2011 tax return A transfer after the death of the person making the first disposition or the related person's death, whichever is earlier, is not treated as a second disposition. How can i amend my 2011 tax return Like-Kind Exchange If you trade business or investment property solely for the same kind of property to be held as business or investment property, you can postpone reporting the gain. How can i amend my 2011 tax return These trades are known as like-kind exchanges. How can i amend my 2011 tax return The property you receive in a like-kind exchange is treated as if it were a continuation of the property you gave up. How can i amend my 2011 tax return You do not have to report any part of your gain if you receive only like-kind property. How can i amend my 2011 tax return However, if you also receive money or other property (boot) in the exchange, you must report your gain to the extent of the money and the FMV of the other property received. How can i amend my 2011 tax return For more information on like-kind exchanges, see Like-Kind Exchanges in chapter 1 of Publication 544. How can i amend my 2011 tax return Installment payments. How can i amend my 2011 tax return   If, in addition to like-kind property, you receive an installment obligation in the exchange, the following rules apply to determine the installment sale income each year. How can i amend my 2011 tax return The contract price is reduced by the FMV of the like-kind property received in the trade. How can i amend my 2011 tax return The gross profit is reduced by any gain on the trade that can be postponed. How can i amend my 2011 tax return Like-kind property received in the trade is not considered payment on the installment obligation. How can i amend my 2011 tax return Example. How can i amend my 2011 tax return In 2013, George Brown trades personal property with an installment sale basis of $400,000 for like-kind property having an FMV of $200,000. How can i amend my 2011 tax return He also receives an installment note for $800,000 in the trade. How can i amend my 2011 tax return Under the terms of the note, he is to receive $100,000 (plus interest) in 2014 and the balance of $700,000 (plus interest) in 2015. How can i amend my 2011 tax return George's selling price is $1,000,000 ($800,000 installment note + $200,000 FMV of like-kind property received). How can i amend my 2011 tax return His gross profit is $600,000 ($1,000,000 − $400,000 installment sale basis). How can i amend my 2011 tax return The contract price is $800,000 ($1,000,000 − $200,000). How can i amend my 2011 tax return The gross profit percentage is 75% ($600,000 ÷ $800,000). How can i amend my 2011 tax return He reports no gain in 2013 because the like-kind property he receives is not treated as a payment for figuring gain. How can i amend my 2011 tax return He reports $75,000 gain for 2014 (75% of $100,000 payment received) and $525,000 gain for 2015 (75% of $700,000 payment received). How can i amend my 2011 tax return Deferred exchanges. How can i amend my 2011 tax return   A deferred exchange is one in which you transfer property you use in business or hold for investment and receive like-kind property later that you will use in business or hold for investment. How can i amend my 2011 tax return Under this type of exchange, the person receiving your property may be required to place funds in an escrow account or trust. How can i amend my 2011 tax return If certain rules are met, these funds will not be considered a payment until you have the right to receive the funds or, if earlier, the end of the exchange period. How can i amend my 2011 tax return See Regulations section 1. How can i amend my 2011 tax return 1031(k)-1(j)(2) for these rules. How can i amend my 2011 tax return Contingent Payment Sale A contingent payment sale is one in which the total selling price cannot be determined by the end of the tax year of sale. How can i amend my 2011 tax return This happens, for example, if you sell your business and the selling price includes a percentage of its profits in future years. How can i amend my 2011 tax return If the selling price cannot be determined by the end of the tax year, you must use different rules to figure the contract price and the gross profit percentage than those you use for an installment sale with a fixed selling price. How can i amend my 2011 tax return For rules on using the installment method for a contingent payment sale, see Regulations section 15a. How can i amend my 2011 tax return 453-1(c). How can i amend my 2011 tax return Single Sale of Several Assets If you sell different types of assets in a single sale, you must identify each asset to determine whether you can use the installment method to report the sale of that asset. How can i amend my 2011 tax return You also have to allocate part of the selling price to each asset. How can i amend my 2011 tax return If you sell assets that constitute a trade or business, see Sale of a Business , later. How can i amend my 2011 tax return Unless an allocation of the selling price has been agreed to by both parties in an arm's-length transaction, you must allocate the selling price to an asset based on its FMV. How can i amend my 2011 tax return If the buyer assumes a debt, or takes the property subject to a debt, you must reduce the FMV of the property by the debt. How can i amend my 2011 tax return This becomes the net FMV. How can i amend my 2011 tax return A sale of separate and unrelated assets of the same type under a single contract is reported as one transaction for the installment method. How can i amend my 2011 tax return However, if an asset is sold at a loss, its disposition cannot be reported on the installment method. How can i amend my 2011 tax return It must be reported separately. How can i amend my 2011 tax return The remaining assets sold at a gain are reported together. How can i amend my 2011 tax return Example. How can i amend my 2011 tax return You sold three separate and unrelated parcels of real property (A, B, and C) under a single contract calling for a total selling price of $130,000. How can i amend my 2011 tax return The total selling price consisted of a cash payment of $20,000, the buyer's assumption of a $30,000 mortgage on parcel B, and an installment obligation of $80,000 payable in eight annual installments, plus interest at 8% a year. How can i amend my 2011 tax return Your installment sale basis for each parcel was $15,000. How can i amend my 2011 tax return Your net gain was $85,000 ($130,000 − $45,000). How can i amend my 2011 tax return You report the gain on the installment method. How can i amend my 2011 tax return The sales contract did not allocate the selling price or the cash payment received in the year of sale among the individual parcels. How can i amend my 2011 tax return The FMV of parcels A, B, and C were $60,000, $60,000, and $10,000, respectively. How can i amend my 2011 tax return The installment sale basis for parcel C was more than its FMV, so it was sold at a loss and must be treated separately. How can i amend my 2011 tax return You must allocate the total selling price and the amounts received in the year of sale between parcel C and the remaining parcels. How can i amend my 2011 tax return Of the total $130,000 selling price, you must allocate $120,000 to parcels A and B together and $10,000 to parcel C. How can i amend my 2011 tax return You should allocate the cash payment of $20,000 received in the year of sale and the note receivable on the basis of their proportionate net FMV. How can i amend my 2011 tax return The allocation is figured as follows:   Parcels   A and B Parcel C FMV $120,000 $10,000 Minus: Mortgage assumed 30,000 -0- Net FMV $ 90,000 $10,000 Proportionate net FMV:     Percentage of total 90% 10% Payments in year of sale:     $20,000 × 90% $18,000   $20,000 × 10%   $2,000 Excess of parcel B mortgage over installment sale basis 15,000 -0- Allocation of payments  received (or considered  received) in year of sale $ 33,000 $ 2,000 You cannot report the sale of parcel C on the installment method because the sale results in a loss. How can i amend my 2011 tax return You report this loss of $5,000 ($10,000 selling price − $15,000 installment sale basis) in the year of sale. How can i amend my 2011 tax return However, if parcel C was held for personal use, the loss is not deductible. How can i amend my 2011 tax return You allocate the installment obligation of $80,000 to the properties sold based on their proportionate net FMVs (90% to parcels A and B, 10% to parcel C). How can i amend my 2011 tax return Sale of a Business The installment sale of an entire business for one overall price under a single contract is not the sale of a single asset. How can i amend my 2011 tax return Allocation of Selling Price To determine whether any of the gain on the sale of the business can be reported on the installment method, you must allocate the total selling price and the payments received in the year of sale between each of the following classes of assets. How can i amend my 2011 tax return Assets sold at a loss. How can i amend my 2011 tax return Real and personal property eligible for the installment method. How can i amend my 2011 tax return Real and personal property ineligible for the installment method, including: Inventory, Dealer property, and Stocks and securities. How can i amend my 2011 tax return Inventory. How can i amend my 2011 tax return   The sale of inventories of personal property cannot be reported on the installment method. How can i amend my 2011 tax return All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. How can i amend my 2011 tax return   If inventory items are included in an installment sale, you may have an agreement stating which payments are for inventory and which are for the other assets being sold. How can i amend my 2011 tax return If you do not, each payment must be allocated between the inventory and the other assets sold. How can i amend my 2011 tax return   Report the amount you receive (or will receive) on the sale of inventory items as ordinary business income. How can i amend my 2011 tax return Use your basis in the inventory to figure the cost of goods sold. How can i amend my 2011 tax return Deduct the part of the selling expenses allocated to inventory as an ordinary business expense. How can i amend my 2011 tax return Residual method. How can i amend my 2011 tax return   Except for assets exchanged under the like-kind exchange rules, both the buyer and seller of a business must use the residual method to allocate the sale price to each business asset sold. How can i amend my 2011 tax return This method determines gain or loss from the transfer of each asset and the buyer's basis in the assets. How can i amend my 2011 tax return   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. How can i amend my 2011 tax return This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b). How can i amend my 2011 tax return   A group of assets constitutes a trade or business if goodwill or going concern value could, under any circumstances, attach to the assets or if the use of the assets would constitute an active trade or business under section 355. How can i amend my 2011 tax return   The residual method provides for the consideration to be reduced first by cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). How can i amend my 2011 tax return The consideration remaining after this reduction must be allocated among the various business assets in a certain order. How can i amend my 2011 tax return   For asset acquisitions occurring after March 15, 2001, make the allocation among the following assets in proportion to (but not more than) their fair market value on the purchase date in the following order. How can i amend my 2011 tax return Certificates of deposit, U. How can i amend my 2011 tax return S. How can i amend my 2011 tax return Government securities, foreign currency, and actively traded personal property, including stock and securities. How can i amend my 2011 tax return Accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. How can i amend my 2011 tax return However, see Regulations section 1. How can i amend my 2011 tax return 338-6(b)(2)(iii) for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. How can i amend my 2011 tax return Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. How can i amend my 2011 tax return All other assets except section 197 intangibles. How can i amend my 2011 tax return Section 197 intangibles except goodwill and going concern value. How can i amend my 2011 tax return Goodwill and going concern value (whether or not they qualify as section 197 intangibles). How can i amend my 2011 tax return   If an asset described in (1) through (6) is includible in more than one category, include it in the lower number category. How can i amend my 2011 tax return For example, if an asset is described in both (4) and (6), include it in (4). How can i amend my 2011 tax return Agreement. How can i amend my 2011 tax return   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. How can i amend my 2011 tax return This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. How can i amend my 2011 tax return Reporting requirement. How can i amend my 2011 tax return   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. How can i amend my 2011 tax return Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. How can i amend my 2011 tax return The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. How can i amend my 2011 tax return Sale of Partnership Interest A partner who sells a partnership interest at a gain may be able to report the sale on the installment method. How can i amend my 2011 tax return The sale of a partnership interest is treated as the sale of a single capital asset. How can i amend my 2011 tax return The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary income. How can i amend my 2011 tax return (The term “unrealized receivables” includes depreciation recapture income, discussed earlier. How can i amend my 2011 tax return ) The gain allocated to the unrealized receivables and the inventory cannot be reported under the installment method. How can i amend my 2011 tax return The gain allocated to the other assets can be reported under the installment method. How can i amend my 2011 tax return For more information on the treatment of unrealized receivables and inventory, see Publication 541. How can i amend my 2011 tax return Example — Sale of a Business On June 4, 2013, you sold the machine shop you had operated since 2005. How can i amend my 2011 tax return You received a $100,000 down payment and the buyer's note for $120,000. How can i amend my 2011 tax return The note payments are $15,000 each, plus 10% interest, due every July 1 and January 1, beginning in 2014. How can i amend my 2011 tax return The total selling price is $220,000. How can i amend my 2011 tax return Your selling expenses are $11,000. How can i amend my 2011 tax return The selling expenses are divided among all the assets sold, including inventory. How can i amend my 2011 tax return Your selling expense for each asset is 5% of the asset's selling price ($11,000 selling expense ÷ $220,000 total selling price). How can i amend my 2011 tax return The FMV, adjusted basis, and depreciation claimed on each asset sold are as follows:     Depre- ciation Adj. How can i amend my 2011 tax return Asset FMV Claimed Basis Inventory $ 10,000 -0- $ 8,000 Land 42,000 -0- 15,000 Building 48,000 $9,000 36,000 Machine A 71,000 27,200 63,800 Machine B 24,000 12,960 22,040 Truck 6,500 18,624 5,376   $201,500 $67,784 $150,216         Under the residual method, you allocate the selling price to each of the assets based on their FMV ($201,500). How can i amend my 2011 tax return The remaining $18,500 ($220,000 - $201,500) is allocated to your section 197 intangible, goodwill. How can i amend my 2011 tax return The assets included in the sale, their selling prices based on their FMVs, the selling expense allocated to each asset, the adjusted basis, and the gain for each asset are shown in the following chart. How can i amend my 2011 tax return   Sale  Price Sale   Exp. How can i amend my 2011 tax return Adj. How can i amend my 2011 tax return   Basis Gain Inventory $ 10,000 $ 500 $ 8,000 $ 1,500 Land 42,000 2,100 15,000 24,900 Building 48,000 2,400 36,000 9,600 Mch. How can i amend my 2011 tax return A 71,000 3,550 63,800 3,650 Mch. How can i amend my 2011 tax return B 24,000 1,200 22,040 760 Truck 6,500 325 5,376 799 Goodwill 18,500 925 -0- 17,575   $220,000 $11,000 $150,216 $58,784 The building was acquired in 2005, the year the business began, and it is section 1250 property. How can i amend my 2011 tax return There is no depreciation recapture income because the building was depreciated using the straight line method. How can i amend my 2011 tax return All gain on the truck, machine A, and machine B is depreciation recapture income since it is the lesser of the depreciation claimed or the gain on the sale. How can i amend my 2011 tax return Figure depreciation recapture in Part III of Form 4797. How can i amend my 2011 tax return The total depreciation recapture income reported in Part II of Form 4797 is $5,209. How can i amend my 2011 tax return This consists of $3,650 on machine A, $799 on the truck, and $760 on machine B (the gain on each item because it was less than the depreciation claimed). How can i amend my 2011 tax return These gains are reported in full in the year of sale and are not included in the installment sale computation. How can i amend my 2011 tax return Of the $220,000 total selling price, the $10,000 for inventory assets cannot be reported using the installment method. How can i amend my 2011 tax return The selling prices of the truck and machines are also removed from the total selling price because gain on these items is reported in full in the year of sale. How can i amend my 2011 tax return The selling price equals the contract price for the installment sale ($108,500). How can i amend my 2011 tax return The assets included in the installment sale, their selling price, and their installment sale bases are shown in the following chart. How can i amend my 2011 tax return   Selling  Price Install- ment  Sale  Basis Gross  Profit Land $ 42,000 $17,100 $24,900 Building 48,000 38,400 9,600 Goodwill 18,500 925 17,575 Total $108,500 $56,425 $52,075         The gross profit percentage (gross profit ÷ contract price) for the installment sale is 48% ($52,075 ÷ $108,500). How can i amend my 2011 tax return The gross profit percentage for each asset is figured as follows: Percentage Land— $24,900 ÷ $108,500 22. How can i amend my 2011 tax return 95 Building— $9,600 ÷ $108,500 8. How can i amend my 2011 tax return 85 Goodwill— $17,575 ÷ $108,500 16. How can i amend my 2011 tax return 20 Total 48. How can i amend my 2011 tax return 00 The sale includes assets sold on the installment method and assets for which the gain is reported in full in the year of sale, so payments must be allocated between the installment part of the sale and the part reported in the year of sale. How can i amend my 2011 tax return The selling price for the installment sale is $108,500. How can i amend my 2011 tax return This is 49. How can i amend my 2011 tax return 3% of the total selling price of $220,000 ($108,500 ÷ $220,000). How can i amend my 2011 tax return The selling price of assets not reported on the installment method is $111,500. How can i amend my 2011 tax return This is 50. How can i amend my 2011 tax return 7% ($111,500 ÷ $220,000) of the total selling price. How can i amend my 2011 tax return Multiply principal payments by 49. How can i amend my 2011 tax return 3% to determine the part of the payment for the installment sale. How can i amend my 2011 tax return The balance, 50. How can i amend my 2011 tax return 7%, is for the part reported in the year of the sale. How can i amend my 2011 tax return The gain on the sale of the inventory, machines, and truck is reported in full in the year of sale. How can i amend my 2011 tax return When you receive principal payments in later years, no part of the payment for the sale of these assets is included in gross income. How can i amend my 2011 tax return Only the part for the installment sale (49. How can i amend my 2011 tax return 3%) is used in the installment sale computation. How can i amend my 2011 tax return The only payment received in 2013 is the down payment of $100,000. How can i amend my 2011 tax return The part of the payment for the installment sale is $49,300 ($100,000 × 49. How can i amend my 2011 tax return 3%). How can i amend my 2011 tax return This amount is used in the installment sale computation. How can i amend my 2011 tax return Installment income for 2013. How can i amend my 2011 tax return   Your installment income for each asset is the gross profit percentage for that asset times $49,300, the installment income received in 2013. How can i amend my 2011 tax return Income Land—22. How can i amend my 2011 tax return 95% of $49,300 $11,314 Building—8. How can i amend my 2011 tax return 85% of $49,300 4,363 Goodwill—16. How can i amend my 2011 tax return 2% of $49,300 7,987 Total installment income for 2013 $23,664 Installment income after 2013. How can i amend my 2011 tax return   You figure installment income for years after 2013 by applying the same gross profit percentages to 49. How can i amend my 2011 tax return 3% of the total payments you receive on the buyer's note during the year. How can i amend my 2011 tax return Unstated Interest and Original Issue Discount (OID) An installment sale contract may provide that each deferred payment on the sale will include interest or that there will be an interest payment in addition to the principal payment. How can i amend my 2011 tax return Interest provided in the contract is called stated interest. How can i amend my 2011 tax return If an installment sale contract does not provide for adequate stated interest, part of the stated principal amount of the contract may be recharacterized as interest. How can i amend my 2011 tax return If section 483 applies to the contract, this interest is called unstated interest. How can i amend my 2011 tax return If section 1274 applies to the contract, this interest is called original issue discount (OID). How can i amend my 2011 tax return An installment sale contract does not provide for adequate stated interest if the stated interest rate is lower than the test rate (defined later). How can i amend my 2011 tax return Treatment of unstated interest and OID. How can i amend my 2011 tax return   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. How can i amend my 2011 tax return As a result, the buyer cannot deduct the unstated interest. How can i amend my 2011 tax return The seller must report the unstated interest as income. How can i amend my 2011 tax return   Personal-use property is any property in which substantially all of its use by the buyer is not in connection with a trade or business or an investment activity. How can i amend my 2011 tax return   If the debt is subject to the section 483 rules and is also subject to the below-market loan rules, such as a gift loan, compensation-related loan, or corporation-shareholder loan, then both parties are subject to the below-market loan rules rather than the unstated interest rules. How can i amend my 2011 tax return Rules for the seller. How can i amend my 2011 tax return   If either section 1274 or section 483 applies to the installment sale contract, you must treat part of the installment sale price as interest, even though interest is not called for in the sales agreement. How can i amend my 2011 tax return If either section applies, you must reduce the stated selling price of the property and increase your interest income by this unstated interest. How can i amend my 2011 tax return   Include the unstated interest in income based on your regular method of accounting. How can i amend my 2011 tax return Include OID in income over the term of the contract. How can i amend my 2011 tax return   The OID includible in income each year is based on the constant yield method described in section 1272. How can i amend my 2011 tax return (In some cases, the OID on an installment sale contract also may include all or part of the stated interest, especially if the stated interest is not paid at least annually. How can i amend my 2011 tax return )   If you do not use the installment method to report the sale, report the entire gain under your method of accounting in the year of sale. How can i amend my 2011 tax return Reduce the selling price by any stated principal treated as interest to determine the gain. How can i amend my 2011 tax return   Report unstated interest or OID on your tax return, in addition to stated interest. How can i amend my 2011 tax return Rules for the buyer. How can i amend my 2011 tax return   Any part of the stated selling price of an installment sale contract treated by the buyer as interest reduces the buyer's basis in the property and increases the buyer's interest expense. How can i amend my 2011 tax return These rules do not apply to personal-use property (for example, property not used in a trade or business). How can i amend my 2011 tax return Adequate stated interest. How can i amend my 2011 tax return   An installment sale contract generally provides for adequate stated interest if the contract's stated principal amount is at least equal to the sum of the present values of all principal and interest payments called for under the contract. How can i amend my 2011 tax return The present value of a payment is determined based on the test rate of interest, defined next. How can i amend my 2011 tax return (If section 483 applies to the contract, payments due within six months after the sale are taken into account at face value. How can i amend my 2011 tax return ) In general, an installment sale contract provides for adequate stated interest if the stated interest rate (based on an appropriate compounding period) is at least equal to the test rate of interest. How can i amend my 2011 tax return Test rate of interest. How can i amend my 2011 tax return   The test rate of interest for a contract is the 3-month rate. How can i amend my 2011 tax return The 3-month rate is the lower of the following applicable federal rates (AFRs). How can i amend my 2011 tax return The lowest AFR (based on the appropriate compounding period) in effect during the 3-month period ending with the first month in which there is a binding written contract that substantially provides the terms under which the sale or exchange is ultimately completed. How can i amend my 2011 tax return The lowest AFR (based on the appropriate compounding period) in effect during the 3-month period ending with the month in which the sale or exchange occurs. How can i amend my 2011 tax return Applicable federal rate (AFR). How can i amend my 2011 tax return   The AFR depends on the month the binding
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How can i amend my 2011 tax return 4. How can i amend my 2011 tax return   Reporting Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Information Returns Schedule D and Form 8949Long and Short Term Net Gain or Loss Treatment of Capital Losses Capital Gains Tax Rates Form 4797Mark-to-market election. How can i amend my 2011 tax return Introduction This chapter explains how to report capital gains and losses and ordinary gains and losses from sales, exchanges, and other dispositions of property. How can i amend my 2011 tax return Although this discussion refers to Schedule D (Form 1040) and Form 8949, many of the rules discussed here also apply to taxpayers other than individuals. How can i amend my 2011 tax return However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. How can i amend my 2011 tax return Topics - This chapter discusses: Information returns Schedule D (Form 1040) Form 4797 Form 8949 Useful Items - You may want to see: Publication 550 Investment Income and Expenses 537 Installment Sales Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1099-B Proceeds From Broker and Barter Exchange Transactions 1099-S Proceeds From Real Estate Transactions 4684 Casualties and Thefts 4797 Sales of Business Property 6252 Installment Sale Income 6781 Gains and Losses from Section 1256 Contracts and Straddles 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets See chapter 5 for information about getting publications and forms. How can i amend my 2011 tax return Information Returns If you sell or exchange certain assets, you should receive an information return showing the proceeds of the sale. How can i amend my 2011 tax return This information is also provided to the IRS. How can i amend my 2011 tax return Form 1099-B. How can i amend my 2011 tax return   If you sold property, such as stocks, bonds, or certain commodities, through a broker, you should receive Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or a substitute statement from the broker. How can i amend my 2011 tax return Use the Form 1099-B or a substitute statement to complete Form 8949 and/or Schedule D. How can i amend my 2011 tax return Whether or not you receive 1099-B, you must report all taxable sales of stock, bonds, commodities, etc. How can i amend my 2011 tax return on Form 8949 and/or Schedule D, as applicable. How can i amend my 2011 tax return For more information on figuring gains and losses from these transactions, see chapter 4 in Publication 550. How can i amend my 2011 tax return For information on reporting the gains and losses, see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). How can i amend my 2011 tax return Form 1099-S. How can i amend my 2011 tax return   An information return must be provided on certain real estate transactions. How can i amend my 2011 tax return Generally, the person responsible for closing the transaction (the “real estate reporting person”) must report on Form 1099-S sales or exchanges of the following types of property. How can i amend my 2011 tax return Land (improved or unimproved), including air space. How can i amend my 2011 tax return An inherently permanent structure, including any residential, commercial, or industrial building. How can i amend my 2011 tax return A condominium unit and its related fixtures and common elements (including land). How can i amend my 2011 tax return Stock in a cooperative housing corporation. How can i amend my 2011 tax return If you sold or exchanged any of the above types of property, the “real estate reporting person” must give you a copy of Form 1099-S or a statement containing the same information as the Form 1099-S. How can i amend my 2011 tax return The “real estate reporting person” could include the buyer's attorney, your attorney, the title or escrow company, a mortgage lender, your broker, the buyer's broker, or the person acquiring the biggest interest in the property. How can i amend my 2011 tax return   For more information see chapter 4 in Publication 550. How can i amend my 2011 tax return Also, see the Instructions for Form 8949. How can i amend my 2011 tax return Schedule D and Form 8949 Form 8949. How can i amend my 2011 tax return   Individuals, corporations, and partnerships, use Form 8949 to report the following. How can i amend my 2011 tax return    Sales or exchanges of capital assets, including stocks, bonds, etc. How can i amend my 2011 tax return , and real estate (if not reported on another form or schedule such as Form 4684, 4797, 6252, 6781, or 8824). How can i amend my 2011 tax return Include these transactions even if you did not receive a Form 1099-B or 1099-S. How can i amend my 2011 tax return Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit. How can i amend my 2011 tax return Nonbusiness bad debts. How can i amend my 2011 tax return   Individuals, If you are filing a joint return, complete as many copies of Form 8949 as you need to report all of your and your spouse's transactions. How can i amend my 2011 tax return You and your spouse may list your transactions on separate forms or you may combine them. How can i amend my 2011 tax return However, you must include on your Schedule D the totals from all Forms 8949 for both you and your spouse. How can i amend my 2011 tax return    Corporations and electing large partnerships also use Form 8949 to report their share of gain or loss from a partnership, S Corporation, estate or trust. How can i amend my 2011 tax return   Business entities meeting certain criteria, may have an exception to some of the normal requirements for completing Form 8949. How can i amend my 2011 tax return See the Instructions for Form 8949. How can i amend my 2011 tax return Schedule D. How can i amend my 2011 tax return    Use Schedule D (Form 1040) to figure the overall gain or loss from transactions reported on Form 8949, and to report certain transactions you do not have to report on Form 8949. How can i amend my 2011 tax return Before completing Schedule D, you may have to complete other forms as shown below. How can i amend my 2011 tax return    Complete all applicable lines of Form 8949 before completing lines 1b, 2, 3, 8b, 9, or 10 of your applicable Schedule D. How can i amend my 2011 tax return Enter on Schedule D the combined totals from all your Forms 8949. How can i amend my 2011 tax return For a sale, exchange, or involuntary conversion of business property, complete Form 4797 (discussed later). How can i amend my 2011 tax return For a like-kind exchange, complete Form 8824. How can i amend my 2011 tax return See Reporting the exchange under Like-Kind Exchanges in chapter 1. How can i amend my 2011 tax return For an installment sale, complete Form 6252. How can i amend my 2011 tax return See Publication 537. How can i amend my 2011 tax return For an involuntary conversion due to casualty or theft, complete Form 4684. How can i amend my 2011 tax return See Publication 547, Casualties, Disasters, and Thefts. How can i amend my 2011 tax return For a disposition of an interest in, or property used in, an activity to which the at-risk rules apply, complete Form 6198, At-Risk Limitations. How can i amend my 2011 tax return See Publication 925, Passive Activity and At-Risk Rules. How can i amend my 2011 tax return For a disposition of an interest in, or property used in, a passive activity, complete Form 8582, Passive Activity Loss Limitations. How can i amend my 2011 tax return See Publication 925. How can i amend my 2011 tax return For gains and losses from section 1256 contracts and straddles, complete Form 6781. How can i amend my 2011 tax return See Publication 550. How can i amend my 2011 tax return Personal-use property. How can i amend my 2011 tax return   Report gain on the sale or exchange of property held for personal use (such as your home) on Form 8949 and Schedule D (Form 1040), as applicable. How can i amend my 2011 tax return Loss from the sale or exchange of property held for personal use is not deductible. How can i amend my 2011 tax return But if you had a loss from the sale or exchange of real estate held for personal use for which you received a Form 1099-S, report the transaction on Form 8949 and Schedule D, even though the loss is not deductible. How can i amend my 2011 tax return See the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949 for information on how to report the transaction. How can i amend my 2011 tax return Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. How can i amend my 2011 tax return The time you own an asset before disposing of it is the holding period. How can i amend my 2011 tax return If you received a Form 1099-B, (or substitute statement) box 1c may help you determine whether the gain or loss is short-term or long-term. How can i amend my 2011 tax return If you hold a capital asset 1 year or less, the gain or loss from its disposition is short term. How can i amend my 2011 tax return Report it in Part I of Form 8949 and/or Schedule D, as applicable. How can i amend my 2011 tax return If you hold a capital asset longer than 1 year, the gain or loss from its disposition is long term. How can i amend my 2011 tax return Report it in Part II of Form 8949 and/or Schedule D, as applicable. How can i amend my 2011 tax return   Table 4-1. How can i amend my 2011 tax return Do I Have a Short-Term or Long-Term Gain or Loss? IF you hold the property. How can i amend my 2011 tax return . How can i amend my 2011 tax return . How can i amend my 2011 tax return  THEN you have a. How can i amend my 2011 tax return . How can i amend my 2011 tax return . How can i amend my 2011 tax return 1 year or less, Short-term capital gain or  loss. How can i amend my 2011 tax return More than 1 year, Long-term capital gain or  loss. How can i amend my 2011 tax return These distinctions are essential to correctly arrive at your net capital gain or loss. How can i amend my 2011 tax return Capital losses are allowed in full against capital gains plus up to $3,000 of ordinary income. How can i amend my 2011 tax return See Capital Gains Tax Rates, later. How can i amend my 2011 tax return Holding period. How can i amend my 2011 tax return   To figure if you held property longer than 1 year, start counting on the day following the day you acquired the property. How can i amend my 2011 tax return The day you disposed of the property is part of your holding period. How can i amend my 2011 tax return Example. How can i amend my 2011 tax return If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. How can i amend my 2011 tax return If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. How can i amend my 2011 tax return Patent property. How can i amend my 2011 tax return   If you dispose of patent property, you generally are considered to have held the property longer than 1 year, no matter how long you actually held it. How can i amend my 2011 tax return For more information, see Patents in chapter 2. How can i amend my 2011 tax return Inherited property. How can i amend my 2011 tax return   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. How can i amend my 2011 tax return Installment sale. How can i amend my 2011 tax return   The gain from an installment sale of an asset qualifying for long-term capital gain treatment in the year of sale continues to be long term in later tax years. How can i amend my 2011 tax return If it is short term in the year of sale, it continues to be short term when payments are received in later tax years. How can i amend my 2011 tax return    The date the installment payment is received determines the capital gains rate that should be applied not the date the asset was sold under an installment contract. How can i amend my 2011 tax return Nontaxable exchange. How can i amend my 2011 tax return   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. How can i amend my 2011 tax return That is, it begins on the same day as your holding period for the old property. How can i amend my 2011 tax return Example. How can i amend my 2011 tax return You bought machinery on December 4, 2012. How can i amend my 2011 tax return On June 4, 2013, you traded this machinery for other machinery in a nontaxable exchange. How can i amend my 2011 tax return On December 5, 2013, you sold the machinery you got in the exchange. How can i amend my 2011 tax return Your holding period for this machinery began on December 5, 2012. How can i amend my 2011 tax return Therefore, you held it longer than 1 year. How can i amend my 2011 tax return Corporate liquidation. How can i amend my 2011 tax return   The holding period for property you receive in a liquidation generally starts on the day after you receive it if gain or loss is recognized. How can i amend my 2011 tax return Profit-sharing plan. How can i amend my 2011 tax return   The holding period of common stock withdrawn from a qualified contributory profit-sharing plan begins on the day following the day the plan trustee delivered the stock to the transfer agent with instructions to reissue the stock in your name. How can i amend my 2011 tax return Gift. How can i amend my 2011 tax return   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. How can i amend my 2011 tax return For more information on basis, see Publication 551, Basis of Assets. How can i amend my 2011 tax return Real property. How can i amend my 2011 tax return   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, the day after you took possession of it and assumed the burdens and privileges of ownership. How can i amend my 2011 tax return   However, taking possession of real property under an option agreement is not enough to start the holding period. How can i amend my 2011 tax return The holding period cannot start until there is an actual contract of sale. How can i amend my 2011 tax return The holding period of the seller cannot end before that time. How can i amend my 2011 tax return Repossession. How can i amend my 2011 tax return   If you sell real property but keep a security interest in it and then later repossess it, your holding period for a later sale includes the period you held the property before the original sale, as well as the period after the repossession. How can i amend my 2011 tax return Your holding period does not include the time between the original sale and the repossession. How can i amend my 2011 tax return That is, it does not include the period during which the first buyer held the property. How can i amend my 2011 tax return Nonbusiness bad debts. How can i amend my 2011 tax return   Nonbusiness bad debts are short-term capital losses. How can i amend my 2011 tax return For information on nonbusiness bad debts, see chapter 4 of Publication 550. How can i amend my 2011 tax return    Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. How can i amend my 2011 tax return Net short-term capital gain or loss. How can i amend my 2011 tax return   Combine your short-term capital gains and losses, including your share of short-term capital gains or losses from partnerships, S corporations, and fiduciaries and any short-term capital loss carryover. How can i amend my 2011 tax return Do this by adding all your short-term capital gains. How can i amend my 2011 tax return Then add all your short-term capital losses. How can i amend my 2011 tax return Subtract the lesser total from the other. How can i amend my 2011 tax return The result is your net short-term capital gain or loss. How can i amend my 2011 tax return Net long-term capital gain or loss. How can i amend my 2011 tax return   Follow the same steps to combine your long-term capital gains and losses. How can i amend my 2011 tax return Include the following items. How can i amend my 2011 tax return Net section 1231 gain from Part I, Form 4797, after any adjustment for nonrecaptured section 1231 losses from prior tax years. How can i amend my 2011 tax return Capital gain distributions from regulated investment companies (mutual funds) and real estate investment trusts. How can i amend my 2011 tax return Your share of long-term capital gains or losses from partnerships, S corporations, and fiduciaries. How can i amend my 2011 tax return Any long-term capital loss carryover. How can i amend my 2011 tax return The result from combining these items with other long-term capital gains and losses is your net long-term capital gain or loss. How can i amend my 2011 tax return Net gain. How can i amend my 2011 tax return   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. How can i amend my 2011 tax return Different tax rates may apply to the part that is a net capital gain. How can i amend my 2011 tax return See Capital Gains Tax Rates, later. How can i amend my 2011 tax return Net loss. How can i amend my 2011 tax return   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. How can i amend my 2011 tax return But there are limits on how much loss you can deduct and when you can deduct it. How can i amend my 2011 tax return See Treatment of Capital Losses, next. How can i amend my 2011 tax return    Treatment of Capital Losses If your capital losses are more than your capital gains, you can deduct the difference as a capital loss deduction even if you do not have ordinary income to offset it. How can i amend my 2011 tax return The yearly limit on the amount of the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). How can i amend my 2011 tax return Table 4-2. How can i amend my 2011 tax return Holding Period for Different Types of Acquisitions Type of acquisition: When your holding period starts: Stocks and bonds bought on a securities market Day after trading date you bought security. How can i amend my 2011 tax return Ends on trading date you sold security. How can i amend my 2011 tax return U. How can i amend my 2011 tax return S. How can i amend my 2011 tax return Treasury notes and bonds If bought at auction, day after notification of bid acceptance. How can i amend my 2011 tax return If bought through subscription, day after subscription was submitted. How can i amend my 2011 tax return Nontaxable exchanges Day after date you acquired old property. How can i amend my 2011 tax return Gift If your basis is giver's adjusted basis, same day as giver's holding period began. How can i amend my 2011 tax return If your basis is FMV, day after date of gift. How can i amend my 2011 tax return Real property bought Generally, day after date you received title to the property. How can i amend my 2011 tax return Real property repossessed Day after date you originally received title to the property, but does not include time between the original sale and date of repossession. How can i amend my 2011 tax return Capital loss carryover. How can i amend my 2011 tax return   Generally, you have a capital loss carryover if either of the following situations applies to you. How can i amend my 2011 tax return Your net loss is more than the yearly limit. How can i amend my 2011 tax return Your taxable income without your deduction for exemptions is less than zero. How can i amend my 2011 tax return If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carryover to 2014. How can i amend my 2011 tax return Example. How can i amend my 2011 tax return Bob and Gloria Sampson sold property in 2013. How can i amend my 2011 tax return The sale resulted in a capital loss of $7,000. How can i amend my 2011 tax return The Sampsons had no other capital transactions. How can i amend my 2011 tax return On their joint 2013 return, the Sampsons deduct $3,000, the yearly limit. How can i amend my 2011 tax return They had taxable income of $2,000. How can i amend my 2011 tax return The unused part of the loss, $4,000 ($7,000 − $3,000), is carried over to 2014. How can i amend my 2011 tax return If the Sampsons' capital loss had been $2,000, it would not have been more than the yearly limit. How can i amend my 2011 tax return Their capital loss deduction would have been $2,000. How can i amend my 2011 tax return They would have no carryover to 2014. How can i amend my 2011 tax return Short-term and long-term losses. How can i amend my 2011 tax return   When you carry over a loss, it retains its original character as either long term or short term. How can i amend my 2011 tax return A short-term loss you carry over to the next tax year is added to short-term losses occurring in that year. How can i amend my 2011 tax return A long-term loss you carry over to the next tax year is added to long-term losses occurring in that year. How can i amend my 2011 tax return A long-term capital loss you carry over to the next year reduces that year's long-term gains before its short-term gains. How can i amend my 2011 tax return   If you have both short-term and long-term losses, your short-term losses are used first against your allowable capital loss deduction. How can i amend my 2011 tax return If, after using your short-term losses, you have not reached the limit on the capital loss deduction, use your long-term losses until you reach the limit. How can i amend my 2011 tax return To figure your capital loss carryover from 2013 to 2014 use the Capital Loss Carryover Worksheet in the 2013 Instructions for Schedule D (Form 1040). How can i amend my 2011 tax return Joint and separate returns. How can i amend my 2011 tax return   On a joint return, the capital gains and losses of spouses are figured as the gains and losses of an individual. How can i amend my 2011 tax return If you are married and filing a separate return, your yearly capital loss deduction is limited to $1,500. How can i amend my 2011 tax return Neither you nor your spouse can deduct any part of the other's loss. How can i amend my 2011 tax return   If you and your spouse once filed separate returns and are now filing a joint return, combine your separate capital loss carryovers. How can i amend my 2011 tax return However, if you and your spouse once filed jointly and are now filing separately, any capital loss carryover from the joint return can be deducted only on the return of the spouse who actually had the loss. How can i amend my 2011 tax return Death of taxpayer. How can i amend my 2011 tax return   Capital losses cannot be carried over after a taxpayer's death. How can i amend my 2011 tax return They are deductible only on the final income tax return filed on the decedent's behalf. How can i amend my 2011 tax return The yearly limit discussed earlier still applies in this situation. How can i amend my 2011 tax return Even if the loss is greater than the limit, the decedent's estate cannot deduct the difference or carry it over to following years. How can i amend my 2011 tax return Corporations. How can i amend my 2011 tax return   A corporation can deduct capital losses only up to the amount of its capital gains. How can i amend my 2011 tax return In other words, if a corporation has a net capital loss, it cannot be deducted in the current tax year. How can i amend my 2011 tax return It must be carried to other tax years and deducted from capital gains occurring in those years. How can i amend my 2011 tax return For more information, see Publication 542. How can i amend my 2011 tax return Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. How can i amend my 2011 tax return These lower rates are called the maximum capital gains rates. How can i amend my 2011 tax return The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. How can i amend my 2011 tax return For 2013, the maximum tax rates for individuals are 0%, 15%, 20%, 25%, and 28%. How can i amend my 2011 tax return Also, individuals, use the Qualified Dividends and Capital Gain Worksheet in the Instructions for Form 1040, or the Schedule D Tax Computation Worksheet in the Instructions for Schedule D (Form 1040) (whichever applies) to figure your tax if you have qualified dividends or net capital gain. How can i amend my 2011 tax return For more information, see chapter 4 of Publication 550. How can i amend my 2011 tax return Also see the Instructions for Schedule D (Form 1040). How can i amend my 2011 tax return Unrecaptured section 1250 gain. How can i amend my 2011 tax return   Generally, this is the part of any long-term capital gain on section 1250 property (real property) that is due to depreciation. How can i amend my 2011 tax return Unrecaptured section 1250 gain cannot be more than the net section 1231 gain or include any gain otherwise treated as ordinary income. How can i amend my 2011 tax return Use the worksheet in the Schedule D instructions to figure your unrecaptured section 1250 gain. How can i amend my 2011 tax return For more information about section 1250 property and net section 1231 gain, see chapter 3. How can i amend my 2011 tax return Form 4797 Use Form 4797 to report: The sale or exchange of: Property used in your trade or business; Depreciable and amortizable property; Oil, gas, geothermal, or other mineral properties; and Section 126 property. How can i amend my 2011 tax return The involuntary conversion (from other than casualty or theft) of property used in your trade or business and capital assets held in connection with a trade or business or a transaction entered into for profit. How can i amend my 2011 tax return The disposition of noncapital assets (other than inventory or property held primarily for sale to customers in the ordinary course of your trade or business). How can i amend my 2011 tax return The disposition of capital assets not reported on Schedule D. How can i amend my 2011 tax return The gain or loss (including any related recapture) for partners and S corporation shareholders from certain section 179 property dispositions by partnerships (other than electing large partnerships) and S corporations. How can i amend my 2011 tax return The computation of recapture amounts under sections 179 and 280F(b)(2) when the business use of section 179 or listed property decreases to 50% or less. How can i amend my 2011 tax return Gains or losses treated as ordinary gains or losses, if you are a trader in securities or commodities and made a mark-to-market election under Internal Revenue Code section 475(f). How can i amend my 2011 tax return You can use Form 4797 with Form 1040, 1065, 1120, or 1120S. How can i amend my 2011 tax return Section 1231 gains and losses. How can i amend my 2011 tax return   Show any section 1231 gains and losses in Part I. How can i amend my 2011 tax return Carry a net gain to Schedule D (Form 1040) as a long-term capital gain. How can i amend my 2011 tax return Carry a net loss to Part II of Form 4797 as an ordinary loss. How can i amend my 2011 tax return   If you had any nonrecaptured net section 1231 losses from the preceding 5 tax years, reduce your net gain by those losses and report the amount of the reduction as an ordinary gain in Part II. How can i amend my 2011 tax return Report any remaining gain on Schedule D (Form 1040). How can i amend my 2011 tax return See Section 1231 Gains and Losses in chapter 3. How can i amend my 2011 tax return Ordinary gains and losses. How can i amend my 2011 tax return   Show any ordinary gains and losses in Part II. How can i amend my 2011 tax return This includes a net loss or a recapture of losses from prior years figured in Part I of Form 4797. How can i amend my 2011 tax return It also includes ordinary gain figured in Part III. How can i amend my 2011 tax return Mark-to-market election. How can i amend my 2011 tax return   If you made a mark-to-market election, you should report all gains and losses from trading as ordinary gains and losses in Part II of Form 4797, instead of as capital gains and losses on Form 8949 and Schedule D (Form 1040). How can i amend my 2011 tax return See the Instructions for Form 4797. How can i amend my 2011 tax return Also see Special Rules for Traders in Securities, in chapter 4 of Publication 550. How can i amend my 2011 tax return Ordinary income from depreciation. How can i amend my 2011 tax return   Figure the ordinary income from depreciation on personal property and additional depreciation on real property (as discussed in chapter 3) in Part III. How can i amend my 2011 tax return Carry the ordinary income to Part II of Form 4797 as an ordinary gain. How can i amend my 2011 tax return Carry any remaining gain to Part I as section 1231 gain, unless it is from a casualty or theft. How can i amend my 2011 tax return Carry any remaining gain from a casualty or theft to Form 4684. How can i amend my 2011 tax return Prev  Up  Next   Home   More Online Publications