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Federal Tax Extension Form

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Federal Tax Extension Form

Federal tax extension form Publication 537 - Main Content Table of Contents What Is an Installment Sale?Special rule. Federal tax extension form 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. Federal tax extension form Several assets. Federal tax extension form Special situations. Federal tax extension form Schedule D (Form 1040). Federal tax extension form Form 4797. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form The installment sales method cannot be used for the following. Federal tax extension form Sale of inventory. Federal tax extension form   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. Federal tax extension form See Sale of a Business under Other Rules, later. Federal tax extension form Dealer sales. Federal tax extension form   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. Federal tax extension form This rule also applies to real property held for sale to customers in the ordinary course of a trade or business. Federal tax extension form However, the rule does not apply to an installment sale of property used or produced in farming. Federal tax extension form Special rule. Federal tax extension form   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. Federal tax extension form For more information, see section 453(l). Federal tax extension form Stock or securities. Federal tax extension form   You cannot use the installment method to report gain from the sale of stock or securities traded on an established securities market. Federal tax extension form You must report the entire gain on the sale in the year in which the trade date falls. Federal tax extension form Installment obligation. Federal tax extension form   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. Federal tax extension form 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. Federal tax extension form See Electing Out of the Installment Method under Other Rules, later, for information on recognizing the entire gain in the year of sale. Federal tax extension form Sale at a loss. Federal tax extension form   If your sale results in a loss, you cannot use the installment method. Federal tax extension form If the loss is on an installment sale of business or investment property, you can deduct it only in the tax year of sale. Federal tax extension form Unstated interest. Federal tax extension form   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. Federal tax extension form See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. Federal tax extension form 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. Federal tax extension form Each payment on an installment sale usually consists of the following three parts. Federal tax extension form Interest income. Federal tax extension form Return of your adjusted basis in the property. Federal tax extension form Gain on the sale. Federal tax extension form 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. Federal tax extension form You do not include in income the part that is the return of your basis in the property. Federal tax extension form Basis is the amount of your investment in the property for installment sale purposes. Federal tax extension form Interest Income You must report interest as ordinary income. Federal tax extension form Interest is generally not included in a down payment. Federal tax extension form 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. Federal tax extension form Interest provided in the agreement is called stated interest. Federal tax extension form If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. Federal tax extension form See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. Federal tax extension form 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. Federal tax extension form A tax-free return of your adjusted basis in the property, and Your gain (referred to as installment sale income on Form 6252). Federal tax extension form Figuring adjusted basis for installment sale purposes. Federal tax extension form   You can use Worksheet A to figure your adjusted basis in the property for installment sale purposes. Federal tax extension form 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. Federal tax extension form Worksheet A. Federal tax extension form Figuring Adjusted Basis and Gross Profit Percentage 1. Federal tax extension form Enter the selling price for the property   2. Federal tax extension form Enter your adjusted basis for the property     3. Federal tax extension form Enter your selling expenses     4. Federal tax extension form Enter any depreciation recapture     5. Federal tax extension form Add lines 2, 3, and 4. Federal tax extension form  This is your adjusted basis for installment sale purposes   6. Federal tax extension form Subtract line 5 from line 1. Federal tax extension form If zero or less, enter -0-. Federal tax extension form  This is your gross profit     If the amount entered on line 6 is zero, stop here. Federal tax extension form You cannot use the installment method. Federal tax extension form   7. Federal tax extension form Enter the contract price for the property   8. Federal tax extension form Divide line 6 by line 7. Federal tax extension form This is your gross profit percentage   Selling price. Federal tax extension form   The selling price is the total cost of the property to the buyer and includes any of the following. Federal tax extension form Any money you are to receive. Federal tax extension form 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). Federal tax extension form 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). Federal tax extension form Any of your selling expenses the buyer pays. Federal tax extension form   Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. Federal tax extension form Adjusted basis for installment sale purposes. Federal tax extension form   Your adjusted basis is the total of the following three items. Federal tax extension form Adjusted basis. Federal tax extension form Selling expenses. Federal tax extension form Depreciation recapture. Federal tax extension form Adjusted basis. Federal tax extension form   Basis is your investment in the property for installment sale purposes. Federal tax extension form The way you figure basis depends on how you acquire the property. Federal tax extension form The basis of property you buy is generally its cost. Federal tax extension form The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. Federal tax extension form   While you own property, various events may change your original basis. Federal tax extension form Some events, such as adding rooms or making permanent improvements, increase basis. Federal tax extension form Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. Federal tax extension form The result is adjusted basis. Federal tax extension form   For more information on how to figure basis and adjusted basis, see Publication 551. Federal tax extension form 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. Federal tax extension form Selling expenses. Federal tax extension form   Selling expenses relate to the sale of the property. Federal tax extension form They include commissions, attorney fees, and any other expenses paid on the sale. Federal tax extension form Selling expenses are added to the basis of the sold property. Federal tax extension form Depreciation recapture. Federal tax extension form   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. Federal tax extension form See Depreciation Recapture Income under Other Rules, later. Federal tax extension form Gross profit. Federal tax extension form   Gross profit is the total gain you report on the installment method. Federal tax extension form   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. Federal tax extension form If the property you sold was your home, subtract from the gross profit any gain you can exclude. Federal tax extension form See Sale of Your Home , later, under Reporting Installment Sale Income. Federal tax extension form Contract price. Federal tax extension form   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. Federal tax extension form Gross profit percentage. Federal tax extension form   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. Federal tax extension form This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. Federal tax extension form   The gross profit percentage generally remains the same for each payment you receive. Federal tax extension form However, see the Example under Selling Price Reduced, later, for a situation where the gross profit percentage changes. Federal tax extension form Example. Federal tax extension form You sell property at a contract price of $6,000 and your gross profit is $1,500. Federal tax extension form Your gross profit percentage is 25% ($1,500 ÷ $6,000). Federal tax extension form 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. Federal tax extension form The remainder (balance) of each payment is the tax-free return of your adjusted basis. Federal tax extension form Amount to report as installment sale income. Federal tax extension form   Multiply the payments you receive each year (less interest) by the gross profit percentage. Federal tax extension form The result is your installment sale income for the tax year. Federal tax extension form In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. Federal tax extension form A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. Federal tax extension form For a detailed discussion, see Payments Received or Considered Received under Other Rules, later. Federal tax extension form Selling Price Reduced If the selling price is reduced at a later date, the gross profit on the sale also will change. Federal tax extension form You then must refigure the gross profit percentage for the remaining payments. Federal tax extension form Refigure your gross profit using Worksheet B. Federal tax extension form You will spread any remaining gain over future installments. Federal tax extension form Worksheet B. Federal tax extension form New Gross Profit Percentage — Selling Price Reduced 1. Federal tax extension form Enter the reduced selling  price for the property   2. Federal tax extension form Enter your adjusted  basis for the  property     3. Federal tax extension form Enter your selling  expenses     4. Federal tax extension form Enter any depreciation  recapture     5. Federal tax extension form Add lines 2, 3, and 4. Federal tax extension form   6. Federal tax extension form Subtract line 5 from line 1. Federal tax extension form  This is your adjusted  gross profit   7. Federal tax extension form Enter any installment sale  income reported in  prior year(s)   8. Federal tax extension form Subtract line 7 from line 6   9. Federal tax extension form Future installments   10. Federal tax extension form Divide line 8 by line 9. Federal tax extension form  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. Federal tax extension form Example. Federal tax extension form In 2011, you sold land with a basis of $40,000 for $100,000. Federal tax extension form Your gross profit was $60,000. Federal tax extension form You received a $20,000 down payment and the buyer's note for $80,000. Federal tax extension form The note provides for four annual payments of $20,000 each, plus 8% interest, beginning in 2012. Federal tax extension form Your gross profit percentage is 60%. Federal tax extension form You reported a gain of $12,000 on each payment received in 2011 and 2012. Federal tax extension form 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. Federal tax extension form The new gross profit percentage, 46. Federal tax extension form 67%, is figured on Example—Worksheet B. Federal tax extension form You will report a gain of $7,000 (46. Federal tax extension form 67% of $15,000) on each of the $15,000 installments due in 2013, 2014, and 2015. Federal tax extension form Example — Worksheet B. Federal tax extension form New Gross Profit Percentage — Selling Price Reduced 1. Federal tax extension form Enter the reduced selling  price for the property 85,000 2. Federal tax extension form Enter your adjusted  basis for the  property 40,000   3. Federal tax extension form Enter your selling  expenses -0-   4. Federal tax extension form Enter any depreciation  recapture -0-   5. Federal tax extension form Add lines 2, 3, and 4. Federal tax extension form 40,000 6. Federal tax extension form Subtract line 5 from line 1. Federal tax extension form  This is your adjusted  gross profit 45,000 7. Federal tax extension form Enter any installment sale  income reported in  prior year(s) 24,000 8. Federal tax extension form Subtract line 7 from line 6 21,000 9. Federal tax extension form Future installments 45,000 10. Federal tax extension form Divide line 8 by line 9. Federal tax extension form  This is your new gross profit percentage* 46. Federal tax extension form 67% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Federal tax extension form 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. Federal tax extension form You also will have to report the installment sale income on Schedule D (Form 1040), Capital Gains and Losses, or Form 4797, or both. Federal tax extension form See Schedule D (Form 1040) and Form 4797 , later. Federal tax extension form If the property was your main home, you may be able to exclude part or all of the gain. Federal tax extension form See Sale of Your Home , later. Federal tax extension form 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. Federal tax extension form Attach it to your tax return for each year. Federal tax extension form Form 6252 will help you determine the gross profit, contract price, gross profit percentage, and installment sale income. Federal tax extension form Which parts to complete. Federal tax extension form   Which part to complete depends on whether you are filing the form for the year of sale or a later year. Federal tax extension form Year of sale. Federal tax extension form   Complete lines 1 through 4, Part I, and Part II. Federal tax extension form If you sold property to a related party during the year, also complete Part III. Federal tax extension form Later years. Federal tax extension form   Complete lines 1 through 4 and Part II for any year in which you receive a payment from an installment sale. Federal tax extension form   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. Federal tax extension form (After December 31, 1986, the installment method is not available for the sale of marketable securities. Federal tax extension form ) Complete lines 1 through 4 and Part II for any year in which you receive a payment from the sale. Federal tax extension form Complete Part III unless you received the final payment during the tax year. Federal tax extension form   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. Federal tax extension form 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. Federal tax extension form Complete Part III for the 2 years after the year of sale unless you received the final payment during the tax year. Federal tax extension form 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). Federal tax extension form 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. Federal tax extension form Your gain is long-term if you owned the property for more than 1 year when you sold it. Federal tax extension form 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. Federal tax extension form All or part of any gain from the disposition of the property may be ordinary gain from depreciation recapture. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form ” Sale of Your Home If you sell your home, you may be able to exclude all or part of the gain on the sale. Federal tax extension form See Publication 523 for information about excluding the gain. Federal tax extension form If the sale is an installment sale, any gain you exclude is not included in gross profit when figuring your gross profit percentage. Federal tax extension form Seller-financed mortgage. Federal tax extension form   If you finance the sale of your home to an individual, both you and the buyer may have to follow special reporting procedures. Federal tax extension form   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. Federal tax extension form   When deducting the mortgage interest, the buyer must write your name, address, and SSN on line 11 of Schedule A (Form 1040), Itemized Deductions. Federal tax extension form   If either person fails to include the other person's SSN, a $50 penalty will be assessed. Federal tax extension form Other Rules The rules discussed in this part of the publication apply only in certain circumstances or to certain types of property. Federal tax extension form The following topics are discussed. Federal tax extension form Electing out of the installment method. Federal tax extension form Payments received or considered received. Federal tax extension form Escrow account. Federal tax extension form Depreciation recapture income. Federal tax extension form Sale to a related person. Federal tax extension form Like-kind exchange. Federal tax extension form Contingent payment sale. Federal tax extension form Single sale of several assets. Federal tax extension form Sale of a business. Federal tax extension form Unstated interest and original issue discount. Federal tax extension form Disposition of an installment obligation. Federal tax extension form Repossession. Federal tax extension form Interest on deferred tax. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form Notes, mortgages, and land contracts are examples of obligations that are included at FMV. Federal tax extension form You must figure the FMV of the buyer's installment obligation, whether or not you would actually be able to sell it. Federal tax extension form 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). Federal tax extension form Example. Federal tax extension form You sold a parcel of land for $50,000. Federal tax extension form 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. Federal tax extension form The buyer gave you a note for $40,000. Federal tax extension form The note had an FMV of $40,000. Federal tax extension form You paid a commission of 6%, or $3,000, to a broker for negotiating the sale. Federal tax extension form The land cost $25,000, and you owned it for more than one year. Federal tax extension form You decide to elect out of the installment method and report the entire gain in the year of sale. Federal tax extension form Gain realized:     Selling price $50,000 Minus: Property's adj. Federal tax extension form 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. Federal tax extension form basis $25,000     Commission 3,000 28,000 Gain recognized $22,000 The recognized gain of $22,000 is long-term capital gain. Federal tax extension form 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. Federal tax extension form The interest on the note is ordinary income and is reported as interest income each year. Federal tax extension form How to elect out. Federal tax extension form   To make this election, do not report your sale on Form 6252. Federal tax extension form Instead, report it on Form 8949, Sales and Other Dispositions of Capital Assets, Form 4797, or both. Federal tax extension form When to elect out. Federal tax extension form   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. Federal tax extension form Automatic six-month extension. Federal tax extension form   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). Federal tax extension form Write “Filed pursuant to section 301. Federal tax extension form 9100-2” at the top of the amended return and file it where the original return was filed. Federal tax extension form Revoking the election. Federal tax extension form   Once made, the election can be revoked only with IRS approval. Federal tax extension form A revocation is retroactive. Federal tax extension form You will not be allowed to revoke the election if either of the following applies. Federal tax extension form One of the purposes is to avoid federal income tax. Federal tax extension form The tax year in which any payment was received has closed. Federal tax extension form 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. Federal tax extension form In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form Include these expenses in the selling and contract prices when figuring the gross profit percentage. Federal tax extension form 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. Federal tax extension form Mortgage not more than basis. Federal tax extension form   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. Federal tax extension form It is considered a recovery of your basis. Federal tax extension form The contract price is the selling price minus the mortgage. Federal tax extension form Example. Federal tax extension form You sell property with an adjusted basis of $19,000. Federal tax extension form You have selling expenses of $1,000. Federal tax extension form 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). Federal tax extension form The selling price is $25,000 ($15,000 + $10,000). Federal tax extension form Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). Federal tax extension form The contract price is $10,000 ($25,000 − $15,000 mortgage). Federal tax extension form Your gross profit percentage is 50% ($5,000 ÷ $10,000). Federal tax extension form You report half of each $2,000 payment received as gain from the sale. Federal tax extension form You also report all interest you receive as ordinary income. Federal tax extension form Mortgage more than basis. Federal tax extension form   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. Federal tax extension form The part of the mortgage greater than your basis is treated as a payment received in the year of sale. Federal tax extension form   To figure the contract price, subtract the mortgage from the selling price. Federal tax extension form This is the total amount (other than interest) you will receive directly from the buyer. Federal tax extension form Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). Federal tax extension form The contract price is then the same as your gross profit from the sale. Federal tax extension form    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. Federal tax extension form Example. Federal tax extension form The selling price for your property is $9,000. Federal tax extension form The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. Federal tax extension form Your adjusted basis in the property is $4,400. Federal tax extension form You have selling expenses of $600, for a total installment sale basis of $5,000. Federal tax extension form The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). Federal tax extension form This amount is included in the contract price and treated as a payment received in the year of sale. Federal tax extension form 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%. Federal tax extension form Report 100% of each payment (less interest) as gain from the sale. Federal tax extension form 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. Federal tax extension form Mortgage Canceled If the buyer of your property is the person who holds the mortgage on it, your debt is canceled, not assumed. Federal tax extension form You are considered to receive a payment equal to the outstanding canceled debt. Federal tax extension form Example. Federal tax extension form Mary Jones loaned you $45,000 in 2009 in exchange for a note and a mortgage in a tract of land you owned. Federal tax extension form On April 4, 2013, she bought the land for $70,000. Federal tax extension form At that time, $30,000 of her loan to you was outstanding. Federal tax extension form 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. Federal tax extension form She did not assume an existing mortgage. Federal tax extension form She canceled the $30,000 debt you owed her. Federal tax extension form You are considered to have received a $30,000 payment at the time of the sale. Federal tax extension form 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. Federal tax extension form If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. Federal tax extension form Compare the debt to your installment sale basis in the property being sold. Federal tax extension form If the debt is less than your installment sale basis, none of it is treated as a payment. Federal tax extension form If it is more, only the difference is treated as a payment. Federal tax extension form 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. Federal tax extension form These rules are the same as the rules discussed earlier under Buyer Assumes Mortgage . Federal tax extension form However, they apply only to the following types of debt the buyer assumes. Federal tax extension form Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. Federal tax extension form Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. Federal tax extension form 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. Federal tax extension form The value of the assumed debt is then considered a payment to you in the year of sale. Federal tax extension form 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. Federal tax extension form However, see Like-Kind Exchange , later. Federal tax extension form Generally, the amount of the payment is the property's FMV on the date you receive it. Federal tax extension form Exception. Federal tax extension form   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. Federal tax extension form See Unstated Interest and Original Issue Discount (OID) , later. Federal tax extension form Debt not payable on demand. Federal tax extension form   Any evidence of debt you receive from the buyer not payable on demand is not considered a payment. Federal tax extension form This is true even if the debt is guaranteed by a third party, including a government agency. Federal tax extension form Fair market value (FMV). Federal tax extension form   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. Federal tax extension form Third-party note. Federal tax extension form   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. Federal tax extension form 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. Federal tax extension form The excess of the note's face value over its FMV is interest. Federal tax extension form Exclude this interest in determining the selling price of the property. Federal tax extension form However, see Exception under Property Used As a Payment, earlier. Federal tax extension form Example. Federal tax extension form You sold real estate in an installment sale. Federal tax extension form As part of the down payment, the buyer assigned to you a $50,000, 8% interest third-party note. Federal tax extension form The FMV of the third-party note at the time of the sale was $30,000. Federal tax extension form This amount, not $50,000, is a payment to you in the year of sale. Federal tax extension form 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. Federal tax extension form The remaining 40% is interest taxed as ordinary income. Federal tax extension form Bond. Federal tax extension form   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. Federal tax extension form For more information on the amount you should treat as a payment, see Exception under Property Used As a Payment, earlier. Federal tax extension form    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. Federal tax extension form However, see Exception under Property Used As a Payment, earlier. Federal tax extension form Buyer's note. Federal tax extension form   The buyer's note (unless payable on demand) is not considered payment on the sale. Federal tax extension form However, its full face value is included when figuring the selling price and the contract price. Federal tax extension form Payments you receive on the note are used to figure your gain in the year received. Federal tax extension form 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. Federal tax extension form This is known as the pledge rule, and it applies if the selling price of the property is over $150,000. Federal tax extension form It does not apply to the following dispositions. Federal tax extension form Sales of property used or produced in farming. Federal tax extension form Sales of personal-use property. Federal tax extension form Qualifying sales of time-shares and residential lots. Federal tax extension form The net debt proceeds are the gross debt minus the direct expenses of getting the debt. Federal tax extension form The amount treated as a payment is considered received on the later of the following dates. Federal tax extension form The date the debt becomes secured. Federal tax extension form The date you receive the debt proceeds. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form Limit. Federal tax extension form   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. Federal tax extension form The total contract price on the installment sale. Federal tax extension form Any payments received on the installment obligation before the date the net debt proceeds are treated as a payment. Federal tax extension form Installment payments. Federal tax extension form   The pledge rule accelerates the reporting of the installment obligation payments. Federal tax extension form 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. Federal tax extension form Exception. Federal tax extension form   The pledge rule does not apply to pledges made after December 17, 1987, to refinance a debt under the following circumstances. Federal tax extension form The debt was outstanding on December 17, 1987. Federal tax extension form The debt was secured by that installment sale obligation on that date and at all times thereafter until the refinancing occurred. Federal tax extension form   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. Federal tax extension form   This exception applies only to refinancing that does not exceed the principal of the original debt immediately before the refinancing. Federal tax extension form Any excess is treated as a payment on the installment obligation. Federal tax extension form 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. Federal tax extension form These sales cannot be reported on the installment method. Federal tax extension form The buyer's obligation is paid in full when the balance of the purchase price is deposited into the escrow account. Federal tax extension form When an escrow account is established, you no longer rely on the buyer for the rest of the payments, but on the escrow arrangement. Federal tax extension form Example. Federal tax extension form You sell property for $100,000. Federal tax extension form 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. Federal tax extension form You cannot report the sale on the installment method because the full purchase price is considered received in the year of sale. Federal tax extension form You report the entire gain in the year of sale. Federal tax extension form Escrow established in a later year. Federal tax extension form   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. Federal tax extension form Substantial restriction. Federal tax extension form   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. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. Federal tax extension form Report the recapture income in Part II of Form 4797 as ordinary income in the year of sale. Federal tax extension form The recapture income is also included in Part I of Form 6252. Federal tax extension form However, the gain equal to the recapture income is reported in full in the year of the sale. Federal tax extension form Only the gain greater than the recapture income is reported on the installment method. Federal tax extension form For more information on depreciation recapture, see chapter 3 in Publication 544. Federal tax extension form 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. Federal tax extension form Determining gross profit is discussed under General Rules , earlier. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form These rules are explained under Sale of Depreciable Property and under Sale and Later Disposition , later. Federal tax extension form Sale of Depreciable Property If you sell depreciable property to certain related persons, you generally cannot report the sale using the installment method. Federal tax extension form Instead, all payments to be received are considered received in the year of sale. Federal tax extension form However, see Exception , below. Federal tax extension form Depreciable property for this rule is any property the purchaser can depreciate. Federal tax extension form Payments to be received include the total of all noncontingent payments and the FMV of any payments contingent as to amount. Federal tax extension form In the case of contingent payments for which the FMV cannot be reasonably determined, your basis in the property is recovered proportionately. Federal tax extension form The purchaser cannot increase the basis of the property acquired in the sale before the seller includes a like amount in income. Federal tax extension form Exception. Federal tax extension form   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. Federal tax extension form 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. Federal tax extension form Related person. Federal tax extension form   Related persons include the following. Federal tax extension form A person and all controlled entities with respect to that person. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form Two or more partnerships in which the same person owns, directly or indirectly, more than 50% of the capital interests or the profits interests. Federal tax extension form   For information about which entities are controlled entities, see section 1239(c). Federal tax extension form 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. Federal tax extension form The related person makes the second disposition before making all payments on the first disposition. Federal tax extension form The related person disposes of the property within 2 years of the first disposition. Federal tax extension form This rule does not apply if the property involved is marketable securities. Federal tax extension form 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. Federal tax extension form See Exception , later. Federal tax extension form Related person. Federal tax extension form   Related persons include the following. Federal tax extension form Members of a family, including only brothers and sisters (either whole or half), husband and wife, ancestors, and lineal descendants. Federal tax extension form A partnership or estate and a partner or beneficiary. Federal tax extension form A trust (other than a section 401(a) employees trust) and a beneficiary. Federal tax extension form A trust and an owner of the trust. Federal tax extension form Two corporations that are members of the same controlled group as defined in section 267(f). Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Federal tax extension form Any two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form An executor and a beneficiary of an estate unless the sale is in satisfaction of a pecuniary bequest. Federal tax extension form Example 1. Federal tax extension form 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. Federal tax extension form His installment sale basis for the farm land was $250,000 and the property was not subject to any outstanding liens or mortgages. Federal tax extension form His gross profit percentage is 50% (gross profit of $250,000 ÷ contract price of $500,000). Federal tax extension form He received $100,000 in 2012 and included $50,000 in income for that year ($100,000 × 0. Federal tax extension form 50). Federal tax extension form Bob made no improvements to the property and sold it to Alfalfa Inc. Federal tax extension form , in 2013 for $600,000 after making the payment for that year. Federal tax extension form The amount realized from the second disposition is $600,000. Federal tax extension form 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 % × . Federal tax extension form 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). Federal tax extension form Example 2. Federal tax extension form Assume the facts are the same as Example 1 except that Bob sells the property for only $400,000. Federal tax extension form 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 % × . Federal tax extension form 50 Installment sale income for 2013 $150,000     Harvey receives a $100,000 payment in 2014 and another in 2015. Federal tax extension form 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. Federal tax extension form In 2016, he receives the final $100,000 payment. Federal tax extension form 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 % × . Federal tax extension form 50 Installment sale income for 2016 $ 50,000 Exception. Federal tax extension form   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. Federal tax extension form 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. Federal tax extension form   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. Federal tax extension form However, the exception does not apply if the resale terms permit significant deferral of recognition of gain from the first sale. Federal tax extension form   In addition, any sale or exchange of stock to the issuing corporation is not treated as a first disposition. Federal tax extension form An involuntary conversion is not treated as a second disposition if the first disposition occurred before the threat of conversion. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form These trades are known as like-kind exchanges. Federal tax extension form The property you receive in a like-kind exchange is treated as if it were a continuation of the property you gave up. Federal tax extension form You do not have to report any part of your gain if you receive only like-kind property. Federal tax extension form 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. Federal tax extension form For more information on like-kind exchanges, see Like-Kind Exchanges in chapter 1 of Publication 544. Federal tax extension form Installment payments. Federal tax extension form   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. Federal tax extension form The contract price is reduced by the FMV of the like-kind property received in the trade. Federal tax extension form The gross profit is reduced by any gain on the trade that can be postponed. Federal tax extension form Like-kind property received in the trade is not considered payment on the installment obligation. Federal tax extension form Example. Federal tax extension form 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. Federal tax extension form He also receives an installment note for $800,000 in the trade. Federal tax extension form 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. Federal tax extension form George's selling price is $1,000,000 ($800,000 installment note + $200,000 FMV of like-kind property received). Federal tax extension form His gross profit is $600,000 ($1,000,000 − $400,000 installment sale basis). Federal tax extension form The contract price is $800,000 ($1,000,000 − $200,000). Federal tax extension form The gross profit percentage is 75% ($600,000 ÷ $800,000). Federal tax extension form He reports no gain in 2013 because the like-kind property he receives is not treated as a payment for figuring gain. Federal tax extension form 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). Federal tax extension form Deferred exchanges. Federal tax extension form   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. Federal tax extension form Under this type of exchange, the person receiving your property may be required to place funds in an escrow account or trust. Federal tax extension form 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. Federal tax extension form See Regulations section 1. Federal tax extension form 1031(k)-1(j)(2) for these rules. Federal tax extension form 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. Federal tax extension form This happens, for example, if you sell your business and the selling price includes a percentage of its profits in future years. Federal tax extension form 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. Federal tax extension form For rules on using the installment method for a contingent payment sale, see Regulations section 15a. Federal tax extension form 453-1(c). Federal tax extension form 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. Federal tax extension form You also have to allocate part of the selling price to each asset. Federal tax extension form If you sell assets that constitute a trade or business, see Sale of a Business , later. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form This becomes the net FMV. Federal tax extension form A sale of separate and unrelated assets of the same type under a single contract is reported as one transaction for the installment method. Federal tax extension form However, if an asset is sold at a loss, its disposition cannot be reported on the installment method. Federal tax extension form It must be reported separately. Federal tax extension form The remaining assets sold at a gain are reported together. Federal tax extension form Example. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form Your installment sale basis for each parcel was $15,000. Federal tax extension form Your net gain was $85,000 ($130,000 − $45,000). Federal tax extension form You report the gain on the installment method. Federal tax extension form The sales contract did not allocate the selling price or the cash payment received in the year of sale among the individual parcels. Federal tax extension form The FMV of parcels A, B, and C were $60,000, $60,000, and $10,000, respectively. Federal tax extension form The installment sale basis for parcel C was more than its FMV, so it was sold at a loss and must be treated separately. Federal tax extension form You must allocate the total selling price and the amounts received in the year of sale between parcel C and the remaining parcels. Federal tax extension form Of the total $130,000 selling price, you must allocate $120,000 to parcels A and B together and $10,000 to parcel C. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form You report this loss of $5,000 ($10,000 selling price − $15,000 installment sale basis) in the year of sale. Federal tax extension form However, if parcel C was held for personal use, the loss is not deductible. Federal tax extension form 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). Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form Assets sold at a loss. Federal tax extension form Real and personal property eligible for the installment method. Federal tax extension form Real and personal property ineligible for the installment method, including: Inventory, Dealer property, and Stocks and securities. Federal tax extension form Inventory. Federal tax extension form   The sale of inventories of personal property cannot be reported on the installment method. Federal tax extension form All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. Federal tax extension form   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. Federal tax extension form If you do not, each payment must be allocated between the inventory and the other assets sold. Federal tax extension form   Report the amount you receive (or will receive) on the sale of inventory items as ordinary business income. Federal tax extension form Use your basis in the inventory to figure the cost of goods sold. Federal tax extension form Deduct the part of the selling expenses allocated to inventory as an ordinary business expense. Federal tax extension form Residual method. Federal tax extension form   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. Federal tax extension form This method determines gain or loss from the transfer of each asset and the buyer's basis in the assets. Federal tax extension form   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. Federal tax extension form 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). Federal tax extension form   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. Federal tax extension form   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). Federal tax extension form The consideration remaining after this reduction must be allocated among the various business assets in a certain order. Federal tax extension form   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. Federal tax extension form Certificates of deposit, U. Federal tax extension form S. Federal tax extension form Government securities, foreign currency, and actively traded personal property, including stock and securities. Federal tax extension form Accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. Federal tax extension form However, see Regulations section 1. Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form All other assets except section 197 intangibles. Federal tax extension form Section 197 intangibles except goodwill and going concern value. Federal tax extension form Goodwill and going concern value (whether or not they qualify as section 197 intangibles). Federal tax extension form   If an asset described in (1) through (6) is includible in more than one category, include it in the lower number category. Federal tax extension form For example, if an asset is described in both (4) and (6), include it in (4). Federal tax extension form Agreement. Federal tax extension form   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. Federal tax extension form This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Federal tax extension form Reporting requirement. Federal tax extension form   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. Federal tax extension form Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. Federal tax extension form The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Federal tax extension form 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. Federal tax extension form The sale of a partnership interest is treated as the sale of a single capital asset. Federal tax extension form The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary income. Federal tax extension form (The term “unrealized receivables” includes depreciation recapture income, discussed earlier. Federal tax extension form ) The gain allocated to the unrealized receivables and the inventory cannot be reported under the installment method. Federal tax extension form The gain allocated to the other assets can be reported under the installment method. Federal tax extension form For more information on the treatment of unrealized receivables and inventory, see Publication 541. Federal tax extension form Example — Sale of a Business On June 4, 2013, you sold the machine shop you had operated since 2005. Federal tax extension form You received a $100,000 down payment and the buyer's note for $120,000. Federal tax extension form The note payments are $15,000 each, plus 10% interest, due every July 1 and January 1, beginning in 2014. Federal tax extension form The total selling price is $220,000. Federal tax extension form Your selling expenses are $11,000. Federal tax extension form The selling expenses are divided among all the assets sold, including inventory. Federal tax extension form Your selling expense for each asset is 5% of the asset's selling price ($11,000 selling expense ÷ $220,000 total selling price). Federal tax extension form The FMV, adjusted basis, and depreciation claimed on each asset sold are as follows:     Depre- ciation Adj. Federal tax extension form 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). Federal tax extension form The remaining $18,500 ($220,000 - $201,500) is allocated to your section 197 intangible, goodwill. Federal tax extension form 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. Federal tax extension form   Sale  Price Sale   Exp. Federal tax extension form Adj. Federal tax extension form   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. Federal tax extension form A 71,000 3,550 63,800 3,650 Mch. Federal tax extension form 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. Federal tax extension form There is no depreciation recapture income because the building was depreciated using the straight line method. Federal tax extension form 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. Federal tax extension form Figure depreciation recapture in Part III of Form 4797. Federal tax extension form The total depreciation recapture income reported in Part II of Form 4797 is $5,209. Federal tax extension form 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). Federal tax extension form These gains are reported in full in the year of sale and are not included in the installment sale computation. Federal tax extension form Of the $220,000 total selling price, the $10,000 for inventory assets cannot be reported using the installment method. Federal tax extension form 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. Federal tax extension form The selling price equals the contract price for the installment sale ($108,500). Federal tax extension form The assets included in the installment sale, their selling price, and their installment sale bases are shown in the following chart. Federal tax extension form   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). Federal tax extension form The gross profit percentage for each asset is figured as follows: Percentage Land— $24,900 ÷ $108,500 22. Federal tax extension form 95 Building— $9,600 ÷ $108,500 8. Federal tax extension form 85 Goodwill— $17,575 ÷ $108,500 16. Federal tax extension form 20 Total 48. Federal tax extension form 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. Federal tax extension form The selling price for the installment sale is $108,500. Federal tax extension form This is 49. Federal tax extension form 3% of the total selling price of $220,000 ($108,500 ÷ $220,000). Federal tax extension form The selling price of assets not reported on the installment method is $111,500. Federal tax extension form This is 50. Federal tax extension form 7% ($111,500 ÷ $220,000) of the total selling price. Federal tax extension form Multiply principal payments by 49. Federal tax extension form 3% to determine the part of the payment for the installment sale. Federal tax extension form The balance, 50. Federal tax extension form 7%, is for the part reported in the year of the sale. Federal tax extension form The gain on the sale of the inventory, machines, and truck is reported in full in the year of sale. Federal tax extension form When you receive principal payments in later years, no part of the payment for the sale of these assets is included in gross income. Federal tax extension form Only the part for the installment sale (49. Federal tax extension form 3%) is used in the installment sale computation. Federal tax extension form The only payment received in 2013 is the down payment of $100,000. Federal tax extension form The part of the payment for the installment sale is $49,300 ($100,000 × 49. Federal tax extension form 3%). Federal tax extension form This amount is used in the installment sale computation. Federal tax extension form Installment income for 2013. Federal tax extension form   Your installment income for each asset is the gross profit percentage for that asset times $49,300, the installment income received in 2013. Federal tax extension form Income Land—22. Federal tax extension form 95% of $49,300 $11,314 Building—8. Federal tax extension form 85% of $49,300 4,363 Goodwill—16. Federal tax extension form 2% of $49,300 7,987 Total installment income for 2013 $23,664 Installment income after 2013. Federal tax extension form   You figure installment income for years after 2013 by applying the same gross profit percentages to 49. Federal tax extension form 3% of the total payments you receive on the buyer's note during the year. Federal tax extension form 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. Federal tax extension form Interest provided in the contract is called stated interest. Federal tax extension form 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. Federal tax extension form If section 483 applies to the contract, this interest is called unstated interest. Federal tax extension form If section 1274 applies to the contract, this interest is called original issue discount (OID). Federal tax extension form An installment sale contract does not provide for adequate stated interest if the stated interest rate is lower than the test rate (defined later). Federal tax extension form Treatment of unstated interest and OID. Federal tax extension form   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. Federal tax extension form As a result, the buyer cannot deduct the unstated interest. Federal tax extension form The seller must report the unstated interest as income. Federal tax extension form   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. Federal tax extension form   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. Federal tax extension form Rules for the seller. Federal tax extension form   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. Federal tax extension form If either section applies, you must reduce the stated selling price of the property and increase your interest income by this unstated interest. Federal tax extension form   Include the unstated interest in income based on your regular method of accounting. Federal tax extension form Include OID in income over the term of the contract. Federal tax extension form   The OID includible in income each year is based on the constant yield method described in section 1272. Federal tax extension form (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. Federal tax extension form )   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. Federal tax extension form Reduce the selling price by any stated principal treated as interest to determine the gain. Federal tax extension form   Report unstated interest or OID on your tax return, in addition to stated interest. Federal tax extension form Rules for the buyer. Federal tax extension form   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. Federal tax extension form These rules do not apply to personal-use property (for example, property not used in a trade or business). Federal tax extension form Adequate stated interest. Federal tax extension form   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. Federal tax extension form The present value of a payment is determined based on the test rate of interest, defined next. Federal tax extension form (If section 483 applies to the contract, payments due within six months after the sale are taken into account at face value. Federal tax extension form ) 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. Federal tax extension form Test rate of interest. Federal tax extension form   The test rate of interest for a contract is the 3-month rate. Federal tax extension form The 3-month rate is the lower of the following applicable federal rates (AFRs). Federal tax extension form 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. Federal tax extension form 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. Federal tax extension form Applicable federal rate (AFR). Federal tax extension form   The AFR depends on the month the binding
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IRS Report on Avoiding Troubled Tax-Advantaged Bonds

The Internal Revenue Service office of Tax Exempt Bonds (TEB) released the report, Avoiding Troubled Tax-Advantaged Bonds. This report produced by the TEB Compliance Practice Research Team seeks to provide aid to issuers of tax-advantaged bonds municipal bonds. It identifies some considerations for issuers of such bonds and is TEB’s initial step toward producing public resource products that assist issuers in avoiding troubled transactions. For more than a decade, TEB observed some of the worst problems in the municipal industry and then witnessed the efforts taken (by leaders in state and local government, the professional communities that support them, and various regulatory bodies) to address them. Many of these complex compliance issues facing issuers of tax-advantaged municipal debt still exist.  

Publishing Avoiding Troubled Tax-Advantaged Bonds is a part of TEB’s continuing effort to provide practical steps and products that may be helpful to issuers of tax-advantaged municipal bonds. As such, we welcome comments and feedback from the tax-advantaged municipal bond community that provide further tools and clarification for issuers. Please submit your comments and feedback to TaxExemptBondQuestions@irs.gov inserting “Avoiding Troubled Tax-Advantaged Bonds Question” on the Subject: line.

The report covers three phases of the life cycle of bonds, each with various considerations, of which an issuer should be aware. These three identified phases are 1) the transaction development phase, 2) the transaction execution phase, and 3) the post-issuance phase. Watch for the TEB presentation of phase one “Transaction Development,” in an upcoming Webinar scheduled for this fall.

TEB hopes that the tax-exempt bond community will use this information to create related products beneficial to their members. These products will provide additional tools that facilitate issuer adoption of practices and procedures that avoid abusive or questionable transactions.

 

 

Page Last Reviewed or Updated: 26-Mar-2014

The Federal Tax Extension Form

Federal tax extension form Index A Addition to property, Additions and Improvements Adjusted basis, Adjusted Basis Alternative Depreciation System (ADS) Recovery periods, Recovery Periods Under ADS Required use, Required use of ADS. Federal tax extension form Amended return, Filing an Amended Return Apartment Cooperative, Cooperative apartments. Federal tax extension form Rental, Which Property Class Applies Under GDS? Automobile (see Passenger automobile) B Basis Adjustments, Basis adjustment for depreciation allowed or allowable. Federal tax extension form , Adjustment of partner's basis in partnership. Federal tax extension form , Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. Federal tax extension form , Basis adjustment due to casualty loss. Federal tax extension form Basis for depreciation, What Is the Basis for Depreciation? Casualty loss, Basis adjustment due to casualty loss. Federal tax extension form Change in use, Property changed from personal use. Federal tax extension form Cost, Cost as Basis Depreciable basis, Depreciable basis. Federal tax extension form Other than cost, Other Basis Recapture of clean-fuel vehicle deduction or credit, Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. Federal tax extension form Term interest, Basis adjustments. Federal tax extension form Unadjusted, Figuring the Unadjusted Basis of Your Property Business use of property, partial, Partial business or investment use. Federal tax extension form Business-use limit, recapture of Section 179 deduction, When Must You Recapture the Deduction? Business-use requirement, listed property, What Is the Business-Use Requirement? C Car (see Passenger automobile) Carryover of section 179 deduction, Carryover of disallowed deduction. Federal tax extension form Casualty loss, effect of, Basis adjustment due to casualty loss. Federal tax extension form Changing accounting method, Changing Your Accounting Method Communication equipment (see Listed property) Commuting, Commuting use. Federal tax extension form Computer (see Listed property) Computer software, Computer software. Federal tax extension form , Off-the-shelf computer software. Federal tax extension form Containers, Containers. Federal tax extension form Conventions, Which Convention Applies? Cooperative apartment, Cooperative apartments. Federal tax extension form Copyright, Patents and copyrights. Federal tax extension form (see also Section 197 intangibles) Correcting depreciation deductions, How Do You Correct Depreciation Deductions? Cost basis, Cost as Basis D Declining balance Method, Declining Balance Method Rates, Declining balance rate. Federal tax extension form Deduction limit Automobile, Do the Passenger Automobile Limits Apply? Section 179, How Much Can You Deduct? Depreciation Deduction Employee, Can Employees Claim a Deduction? Listed property, Can Employees Claim a Deduction? Determinable useful life, Property Having a Determinable Useful Life Excepted property, Excepted Property Incorrect amount deducted, How Do You Correct Depreciation Deductions? Methods, Which Depreciation Method Applies? Property lasting more than one year, Property Lasting More Than One Year Property owned, Property You Own Property used in business, Property Used in Your Business or Income-Producing Activity Recapture, Revoking an election. Federal tax extension form , Recapture of Excess Depreciation Depreciation allowable, Basis adjustment for depreciation allowed or allowable. Federal tax extension form Depreciation allowed, Basis adjustment for depreciation allowed or allowable. Federal tax extension form Depreciation deduction Listed property, What Is the Business-Use Requirement? Determinable useful life, Property Having a Determinable Useful Life Disposition Before recovery period ends, Sale or Other Disposition Before the Recovery Period Ends General asset account property, Disposing of GAA Property Section 179 deduction, When Must You Recapture the Deduction? E Election ADS, Electing ADS. Federal tax extension form , Election of ADS. Federal tax extension form Declining balance (150% DB) method, 150% election. Federal tax extension form Exclusion from MACRS, Election To Exclude Property From MACRS General asset account, Electing To Use a GAA Not to claim special depreciation allowance, How Can You Elect Not To Claim an Allowance? Section 179 deduction, How Do You Elect the Deduction? Straight line method, Straight line election. Federal tax extension form Electric vehicle, Electric Vehicles Employee Depreciation deduction, Can Employees Claim a Deduction? How to claim depreciation, Employee. Federal tax extension form Employee deduction, listed property, Can Employees Claim a Deduction? Energy property, Energy property. Federal tax extension form Exchange of MACRS property, Property Acquired in a Like-kind Exchange or Involuntary Conversion F Farm Property, Depreciation Methods for Farm Property Figuring MACRS Using percentage tables, How Is the Depreciation Deduction Figured? Without using percentage tables, Figuring the Deduction Without Using the Tables Films, Films, video tapes, and recordings. Federal tax extension form Free tax services, Free help with your tax return. Federal tax extension form G General asset account Abusive transaction, Abusive transactions. Federal tax extension form Disposing of property, Disposing of GAA Property Grouping property in, Grouping Property Nonrecognition transaction, Nonrecognition transactions. Federal tax extension form General Depreciation System (GDS), recovery periods, Recovery Periods Under GDS Gift (see Basis, other than cost) H Help (see Tax help) I Idle property, Idle Property Improvements, How Do You Treat Repairs and Improvements?, Additions and Improvements Income forecast method, Income Forecast Method Incorrect depreciation deductions, How Do You Correct Depreciation Deductions? Indian reservation Defined, Indian reservation. Federal tax extension form Qualified infrastructure property, Qualified infrastructure property. Federal tax extension form Qualified property, Qualified property. Federal tax extension form Recovery periods for qualified property, Indian Reservation Property Related person, Related person. Federal tax extension form Inheritance (see Basis, other than cost) Intangible property Depreciation method, Intangible Property, Income Forecast Method Income forecast method, Income Forecast Method Straight line method, Intangible Property Inventory, Inventory. Federal tax extension form Investment use of property, partial, Partial business or investment use. Federal tax extension form Involuntary conversion of MACRS property, Property Acquired in a Like-kind Exchange or Involuntary Conversion L Land Not depreciable, Land Preparation costs, Land Leased property, Leased property. Federal tax extension form Leasehold improvement property, defined, Qualified leasehold improvement property. Federal tax extension form , Qualified leasehold improvement property. Federal tax extension form Life tenant, Life tenant. Federal tax extension form (see also Term interests) Limit on deduction Automobile, Do the Passenger Automobile Limits Apply? Section 179, How Much Can You Deduct? Listed property 5% owner, 5% owner. Federal tax extension form Computer, Computers and Related Peripheral Equipment Condition of employment, Condition of employment. Federal tax extension form Defined, What Is Listed Property? Employee deduction, Can Employees Claim a Deduction? Employer convenience, Employer's convenience. Federal tax extension form Improvements to, Improvements to listed property. Federal tax extension form Leased, Lessee's Inclusion Amount Passenger automobile, Passenger Automobiles Qualified business use, Qualified Business Use Recordkeeping, Adequate Records Related person, Related persons. Federal tax extension form Reporting on Form 4562, How Is Listed Property Information Reported? Lodging, Property used for lodging. Federal tax extension form M Maximum deduction Electric vehicles, Electric Vehicles Passenger automobiles, Maximum Depreciation Deduction Trucks, Trucks and Vans Vans, Trucks and Vans Mobile home (see Residential rental property) Modified ACRS (MACRS) Addition or improvement, Additions and Improvements Alternative Depreciation System (ADS), Which Depreciation System (GDS or ADS) Applies? Conventions, Which Convention Applies? Declining balance method, Declining Balance Method Depreciation methods, Which Depreciation Method Applies? Farm property, Depreciation Methods for Farm Property Figuring, short tax year, Property Placed in Service in a Short Tax Year General Depreciation System (GDS), Which Depreciation System (GDS or ADS) Applies? Percentage tables, Using the MACRS Percentage Tables Property classes, Which Property Class Applies Under GDS? Recovery periods, Which Recovery Period Applies? Short tax year, Figuring the Deduction for a Short Tax Year Straight line method, Straight Line Method N Nonresidential real property, Which Property Class Applies Under GDS? Nontaxable transfer of MACRS property, Property Acquired in a Nontaxable Transfer O Office in the home, Office in the home. Federal tax extension form , Office in the home. Federal tax extension form Ownership, incidents of, Incidents of ownership. Federal tax extension form P Partial business use, Partial business use. Federal tax extension form Passenger automobile Defined, Passenger Automobiles Electric vehicles, Electric Vehicles Limit on, Do the Passenger Automobile Limits Apply? Maximum depreciation deduction, Maximum Depreciation Deduction Trucks, Trucks and Vans Vans, Trucks and Vans Patent, Patents and copyrights. Federal tax extension form (see also Section 197 intangibles) Personal property, Personal property. Federal tax extension form Phonographic equipment (see Listed property) Photographic equipment (see Listed property) Placed in service Before 1987, Property You Placed in Service Before 1987 Date, What Is the Placed in Service Date? Rule, Placed in Service Property Classes, Which Property Class Applies Under GDS? Depreciable, What Property Can Be Depreciated? Idle, Idle Property Improvements, How Do You Treat Repairs and Improvements? Leased, Leased property. Federal tax extension form , Leased property. Federal tax extension form Listed, What Is Listed Property? Personal, Personal property. Federal tax extension form Real, Real property. Federal tax extension form Retired from service, Retired From Service Tangible personal, Tangible personal property. Federal tax extension form Term interest, Certain term interests in property. Federal tax extension form Q Qualified leasehold improvement property, defined, Qualified leasehold improvement property. Federal tax extension form , Qualified leasehold improvement property. Federal tax extension form Qualified property, special depreciation allowance, What Is Qualified Property? R Real property, Real property. Federal tax extension form Recapture Clean-fuel vehicle deduction or credit, Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. Federal tax extension form General asset account, abusive transaction, Abusive transactions. Federal tax extension form Listed property, Recapture of Excess Depreciation MACRS depreciation, Revoking an election. Federal tax extension form Section 179 deduction, When Must You Recapture the Deduction? Special depreciation allowance, When Must You Recapture an Allowance? Recordkeeping Listed property, Adequate Records Section 179, How Do You Elect the Deduction? Recovery periods ADS, Recovery Periods Under ADS GDS, Recovery Periods Under GDS Related persons, Related persons. Federal tax extension form , Related persons. Federal tax extension form , Related persons. Federal tax extension form , Related persons. Federal tax extension form , Related person. Federal tax extension form , Related persons. Federal tax extension form Rent-to-own property, defined, Qualified rent-to-own property. Federal tax extension form Rental home (see Residential rental property) Rented property, improvements, Improvements to rented property. Federal tax extension form Repairs, How Do You Treat Repairs and Improvements? Residential rental property, Which Property Class Applies Under GDS? Retail motor fuels outlet, Retail motor fuels outlet. Federal tax extension form Revoking ADS election, Electing ADS. Federal tax extension form General asset account election, Revoking an election. Federal tax extension form Section 179 election, Revoking an election. Federal tax extension form S Sale of property, Sale or Other Disposition Before the Recovery Period Ends Section 179 deduction Business use required, Partial business use. Federal tax extension form Carryover, Carryover of disallowed deduction. Federal tax extension form Dispositions, When Must You Recapture the Deduction? Electing, How Do You Elect the Deduction? Limits Business (taxable) income, Business Income Limit Business-use, recapture, When Must You Recapture the Deduction? Dollar, Dollar Limits Enterprise zone business, Enterprise Zone Businesses Partial business use, Partial business use. Federal tax extension form Married filing separate returns, Married Individuals Partnership rules, Partnerships and Partners Property Eligible, Eligible Property Excepted, Excepted Property Purchase required, Property Acquired by Purchase Recapture, When Must You Recapture the Deduction? Recordkeeping, How Do You Elect the Deduction? S corporation rules, S Corporations Settlement fees, Settlement costs. Federal tax extension form Short tax year Figuring depreciation, Property Placed in Service in a Short Tax Year Figuring placed-in-service date, Using the Applicable Convention in a Short Tax Year Software, computer, Computer software. Federal tax extension form , Off-the-shelf computer software. Federal tax extension form Sound recording, Films, video tapes, and recordings. Federal tax extension form Special depreciation allowance Election not to claim, How Can You Elect Not To Claim an Allowance? Qualified property, What Is Qualified Property? Recapture, When Must You Recapture an Allowance? Stock, constructive ownership of, Constructive ownership of stock or partnership interest. Federal tax extension form Straight line method, Intangible Property, Straight Line Method Created intangibles, Certain created intangibles. Federal tax extension form T Tangible personal property, Tangible personal property. Federal tax extension form Term interest, Certain term interests in property. Federal tax extension form Trade-in of property, Trade-in of other property. Federal tax extension form Trucks, Trucks and Vans U Unadjusted basis, Figuring the Unadjusted Basis of Your Property Useful life, Property Having a Determinable Useful Life V Vans, Trucks and Vans Video tape, Films, video tapes, and recordings. Federal tax extension form Video-recording equipment (see Listed property) W When to use ADS, Which Depreciation System (GDS or ADS) Applies? Worksheet Leased listed property, Inclusion amount worksheet. Federal tax extension form MACRS, MACRS Worksheet Prev  Up     Home   More Online Publications