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Filing federal and state taxes for free 31. Filing federal and state taxes for free   Impuesto sobre Ingresos No Derivados del Trabajo de Determinados Hijos Table of Contents ¿Que Hay de Nuevo? Introduction Useful Items - You may want to see: Cómo Saber si se Tiene que Utilizar la Declaración del Padre o de la MadrePadres que no Presentan la Declaración Conjunta Elección de los Padres de Declarar los Intereses y Dividendos del HijoConsecuencias de Incluir los Ingresos del Hijo Cómo Calcular los Ingresos del Hijo Cómo Calcular el Impuesto Adicional Impuesto para Determinados Hijos con Ingresos No Derivados del TrabajoCómo Facilitar Información sobre los Padres (líneas A-C del Formulario 8615) Paso 1. Filing federal and state taxes for free Cómo Calcular los Ingresos Netos No Derivados del Trabajo del Hijo (Parte I del Formulario 8615) Paso 2. Filing federal and state taxes for free Cómo Calcular el Impuesto Provisional a la Tasa Impositiva de los Padres (Parte II del Formulario 8615) Paso 3. Filing federal and state taxes for free Cómo Calcular el Impuesto del Hijo (Parte III del Formulario 8615) ¿Que Hay de Nuevo? Impuesto sobre el ingreso neto de inversiones. Filing federal and state taxes for free  Para años empezando después del 31 de diciembre de 2012, el impuesto de un hijo, el cual se calcula en el Formulario 8615, puede estar sujeto al impuesto sobre el ingreso neto de inversiones (NIIT, por sus siglas en inglés). Filing federal and state taxes for free El NIIT es un impuesto de 3. Filing federal and state taxes for free 8% sobre la cantidad menor entre el ingreso neto de inversión o el exceso del ingreso bruto ajustado modificado (MAGI) del hijo que exceda del límite superior específico. Filing federal and state taxes for free Utilice el Formulario 8960, Net Investment Income Tax (Impuesto sobre ingreso neto de inversiones), en inglés, para calcular este impuesto. Filing federal and state taxes for free Para más información sobre el NIIT, visite www. Filing federal and state taxes for free irs. Filing federal and state taxes for free gov e ingrese “Net Investment Income Tax” en la casilla de búsqueda “Search” (Buscar), en inglés. Filing federal and state taxes for free Introduction Este capítulo explica los dos requisitos siguientes, los cuales podrían afectar el impuesto sobre ingresos no derivados del trabajo de determinados hijos: Si los ingresos procedentes de intereses y dividendos del hijo (incluidas las distribuciones de ganancias de capital) totalizan menos de $10,000, el padre o la madre tal vez pueda optar por incluir dichos ingresos en la declaración de uno de los padres en vez de presentar una declaración a nombre del hijo. Filing federal and state taxes for free Vea Elección de los Padres de Declarar Intereses y Dividendos del Hijo , más adelante. Filing federal and state taxes for free Si el total de intereses, dividendos y otros ingresos no derivados del trabajo del hijo sobrepasa $2,000, una parte de dichos ingresos podría estar sujeta a la misma tasa de impuesto que la de sus padres en lugar de estar sujeta a la tasa del hijo. Filing federal and state taxes for free (Vea Impuesto para Determinados Hijos con Ingresos No Derivados del Trabajo , más adelante). Filing federal and state taxes for free En lo que concierne a estos requisitos, el término “hijo” abarca a hijos legalmente adoptados e hijastros. Filing federal and state taxes for free Estos requisitos corresponden tanto si el hijo es dependiente como si no lo es. Filing federal and state taxes for free Useful Items - You may want to see: Publicación 929 Tax Rules for Children and Dependents (Requisitos tributarios para hijos y dependientes), en inglés Formulario (e Instrucciones) 8615 Tax for Certain Children Who Have Unearned Income (Impuesto para determinados hijos con ingresos no derivados del trabajo), en inglés 8814 Parents' Election To Report Child's Interest and Dividends (Elección de los padres de declarar los intereses y dividendos del hijo), en inglés Cómo Saber si se Tiene que Utilizar la Declaración del Padre o de la Madre Si los padres del hijo están casados el uno con el otro y presentan una declaración conjunta, básese en la declaración conjunta para calcular el impuesto sobre los ingresos no derivados del trabajo de dicho hijo. Filing federal and state taxes for free La tasa impositiva y otra información de dicha declaración se utiliza para calcular el impuesto del hijo según se explica más adelante bajo Impuesto para Determinados Hijos con Ingresos No Derivados del Trabajo . Filing federal and state taxes for free Padres que no Presentan la Declaración Conjunta Para los padres que no presenten la declaración conjunta, los siguientes temas aclaran, cuál declaración de impuestos de los padres tiene que utilizar para calcular el impuesto. Filing federal and state taxes for free Sólo el padre o la madre cuya declaración se utilice puede elegir la opción descrita bajo Elección de los Padres de Declarar Intereses y Dividendos del Hijo . Filing federal and state taxes for free Padres casados. Filing federal and state taxes for free   Si los padres del hijo presentan declaraciones por separado, utilice la declaración de quien tenga el mayor ingreso tributable. Filing federal and state taxes for free Padres que no viven juntos. Filing federal and state taxes for free   Si los padres del hijo están casados el uno con el otro pero no viven juntos, y el padre o la madre con quien vive el hijo (el padre o la madre con custodia) se considera no casado, utilice la declaración del padre o de la madre con custodia. Filing federal and state taxes for free Si el padre o la madre con custodia no es considerado no casado, utilice la declaración de quien tenga el mayor ingreso tributable. Filing federal and state taxes for free   Para una explicación sobre cuándo una persona casada que vive aparte de su cónyuge es considerada no casada, vea Cabeza de Familia en el capítulo 2. Filing federal and state taxes for free Padres divorciados. Filing federal and state taxes for free   Si los padres del hijo están divorciados o legalmente separados y el padre o la madre que tuvo la custodia del hijo durante la mayor parte del año (el padre o la madre con custodia) no se ha vuelto a casar, utilice la declaración del padre o de la madre con custodia. Filing federal and state taxes for free Padre o madre con custodia que se ha vuelto a casar. Filing federal and state taxes for free   Si el padre o la madre con custodia ha vuelto a casarse, el padrastro o la madrastra (en vez del padre o la madre sin custodia) se considera el otro padre o la otra madre del hijo. Filing federal and state taxes for free Por lo tanto, si el padre o la madre con custodia y el padrastro o la madrastra presentan una declaración conjunta, utilice dicha declaración conjunta. Filing federal and state taxes for free No utilice la declaración del padre o de la madre sin custodia. Filing federal and state taxes for free   Si el padre o la madre con custodia está casado con el padrastro o la madrastra pero presentan declaraciones por separado, utilice la declaración de quien tenga el mayor ingreso tributable. Filing federal and state taxes for free Si el padre o la madre con custodia está casado con el padrastro o la madrastra pero no viven juntos, corresponde el tema anterior Padres que no viven juntos . Filing federal and state taxes for free Padres que nunca se han casado. Filing federal and state taxes for free   Si los padres del hijo nunca han estado casados el uno con el otro pero vivieron juntos durante todo el año, utilice la declaración de quien tenga el mayor ingreso tributable. Filing federal and state taxes for free Si los padres no vivieron juntos durante todo el año, corresponden los requisitos explicados anteriormente bajo Padres divorciados . Filing federal and state taxes for free Padre viudo o madre viuda que se vuelve a casar. Filing federal and state taxes for free   Si un viudo o una viuda vuelve a casarse, el nuevo cónyuge se considera el otro padre o la otra madre del hijo. Filing federal and state taxes for free En este caso, corresponden los requisitos explicados anteriormente bajo Padre o madre con custodia que se ha vuelto a casar . Filing federal and state taxes for free Elección de los Padres de Declarar los Intereses y Dividendos del Hijo Tal vez pueda optar por incluir los ingresos de su hijo procedentes de intereses y dividendos (incluidas las distribuciones de ganancias de capital) en la declaración de impuestos. Filing federal and state taxes for free En tal caso, su hijo no estará obligado a presentar una declaración. Filing federal and state taxes for free Puede elegir esta opción sólo si se cumplen todas las condiciones siguientes: Su hijo tenía menos de 19 años de edad (o tenía menos de 24 años si era estudiante a tiempo completo) al finalizar el año. Filing federal and state taxes for free Su hijo recibió ingresos sólo de intereses y dividendos (incluidas las distribuciones de ganancias de capital y dividendos del Alaska Permanent Fund (Fondo Permanente de Alaska)). Filing federal and state taxes for free Los ingresos brutos del hijo eran menos de $10,000. Filing federal and state taxes for free El hijo está obligado a presentar la declaración a no ser que usted elija incluir estos ingresos. Filing federal and state taxes for free El hijo no presenta una declaración conjunta correspondiente al año actual. Filing federal and state taxes for free No se efectuó ningún pago de impuestos estimados para el año ni se aplicó a este año ningún pago del año anterior (ni de una declaración enmendada) en exceso bajo el nombre y número de Seguro Social de su hijo. Filing federal and state taxes for free No se retuvo de los ingresos de su hijo ningún impuesto federal sobre los ingresos conforme a las reglas de la retención adicional. Filing federal and state taxes for free Usted es el padre o la madre cuya declaración se tiene que utilizar al aplicar los requisitos tributarios especiales para hijos. Filing federal and state taxes for free (Vea Cómo Saber si se Tiene que Utilizar la Declaración del Padre o de la Madre , anteriormente). Filing federal and state taxes for free Estas condiciones se hallan también en la Figura 31-A. Filing federal and state taxes for free Determinados cumpleaños el 1 de enero. Filing federal and state taxes for free   Un hijo que haya nacido el 1 de enero de 1995 se considerará de 19 años de edad al final del año 2013. Filing federal and state taxes for free Usted no puede optar por declarar los intereses y dividendos de tal hijo a menos que éste fuera estudiante a tiempo completo. Filing federal and state taxes for free   Aquel hijo que haya nacido el 1 de enero de 1990 se considerará de 24 años de edad al final del año 2013. Filing federal and state taxes for free Usted no puede optar por declarar los intereses y dividendos de tal hijo. Filing federal and state taxes for free Estudiante a tiempo completo. Filing federal and state taxes for free   Un estudiante a tiempo completo es un hijo matriculado como tal durante alguna parte de cada uno de 5 meses del año calendario en una escuela o que asistió a tiempo completo a un curso de capacitación agrícola ofrecido sobre el terreno por una escuela, agencia del estado, condado o gobierno local. Filing federal and state taxes for free El término “escuela” abarca escuelas politécnicas, profesionales e industriales. Filing federal and state taxes for free Una escuela no incluye un curso de capacitación en el trabajo, escuela por correspondencia, ni escuelas que ofrecen cursos sólo por Internet. Filing federal and state taxes for free Cómo optar por incluir los ingresos de su hijo. Filing federal and state taxes for free   Elija incluir los ingresos de su hijo adjuntando el Formulario 8814 al Formulario 1040. Filing federal and state taxes for free (Si opta por hacer esto, no puede presentar el Formulario 1040A ni el Formulario 1040EZ). Filing federal and state taxes for free Adjunte un Formulario 8814 distinto correspondiente a cada hijo cuyos ingresos desee incluir. Filing federal and state taxes for free Puede incluir los ingresos de uno o más hijos y no incluir los ingresos de otros. Filing federal and state taxes for free Consecuencias de Incluir los Ingresos del Hijo El impuesto federal sobre los ingresos de su hijo podría ser mayor si opta por usar el Formulario 8814. Filing federal and state taxes for free La tasa impositiva podría ser más alta. Filing federal and state taxes for free   Si su hijo recibió dividendos calificados o distribuciones de ganancias de capital, usted podría pagar hasta $100 adicionales de impuestos si incluye los ingresos de su hijo en vez de presentar una declaración de impuestos por separado a nombre del hijo. Filing federal and state taxes for free Esto se debe a que la tasa impositiva que corresponde a los ingresos de su hijo entre $1,000 y $2,000 es de 10% si usted opta por incluirlos. Filing federal and state taxes for free No obstante, si presenta una declaración por separado en nombre del hijo, la tasa impositiva podría bajar hasta 0% (porcentaje de cero) debido a las tasas impositivas preferentes para dividendos calificados y distribuciones de ganancias de capital. Filing federal and state taxes for free Deducciones que no puede tomar. Filing federal and state taxes for free   Al hacer la elección de incluir estos ingresos en el Formulario 8814, no puede tomar ninguna de las deducciones siguientes a la que el hijo tendría derecho en su propia declaración. Filing federal and state taxes for free La deducción estándar adicional si el hijo es ciego. Filing federal and state taxes for free La deducción por una multa por el retiro prematuro de los ahorros de su hijo. Filing federal and state taxes for free Deducciones detalladas (como gastos de inversiones de su hijo o donaciones caritativas). Filing federal and state taxes for free Deducciones o créditos reducidos. Filing federal and state taxes for free   Si utiliza el Formulario 8814, su ingreso bruto ajustado aumentado podría reducir determinados créditos o deducciones en la declaración, incluyendo lo siguiente: Deducciones por aportaciones a una cuenta de ahorros tradicional para la jubilación (IRA, por sus siglas en inglés). Filing federal and state taxes for free Deducciones por intereses sobre un préstamo de estudios. Filing federal and state taxes for free Deducciones detalladas por gastos médicos, pérdidas por hecho fortuito y robo y ciertos gastos misceláneos. Filing federal and state taxes for free Crédito por gastos del cuidado de hijos y dependientes. Filing federal and state taxes for free Crédito tributario por hijos. Filing federal and state taxes for free Créditos tributarios por estudios. Filing federal and state taxes for free Crédito por ingreso del trabajo. Filing federal and state taxes for free Figura 31-A. Filing federal and state taxes for free ¿Puede Incluir Usted en su Declaración de Impuestos los Ingresos de su Hijo? Please click here for the text description of the image. Filing federal and state taxes for free Figura 31–A. Filing federal and state taxes for free ¿Puede Incluir Usted en su Declaración de Impuestos los Ingresos de su Hijo? Multa por pago insuficiente del impuesto estimado. Filing federal and state taxes for free   Si elige incluir estos ingresos para 2013 y no se le retuvo impuesto suficiente o no pagó suficiente impuesto estimado para saldar los impuestos adeudados, podría estar sujeto a una multa. Filing federal and state taxes for free Si piensa elegir lo mismo para 2014, es posible que necesite aumentar la retención de impuestos federales sobre el ingreso o los pagos de impuesto estimado para evitar la multa. Filing federal and state taxes for free Vea el capítulo 4 para más información. Filing federal and state taxes for free Cómo Calcular los Ingresos del Hijo Utilice la Parte I del Formulario 8814 para calcular los ingresos de su hijo procedentes de intereses y dividendos declarados por usted. Filing federal and state taxes for free A sus ingresos sólo se le añade la cantidad que sea superior a $2,000. Filing federal and state taxes for free La cantidad superior a $2,000 se indica en la línea 6 del Formulario 8814. Filing federal and state taxes for free A menos que los ingresos del hijo abarquen dividendos calificados o distribuciones de ganancias de capital (explicadas a continuación), la misma cantidad se indica en la línea 12 del Formulario 8814. Filing federal and state taxes for free Incluya la cantidad de la línea 12 del Formulario 8814 en la línea 21 del Formulario 1040. Filing federal and state taxes for free Anote en inglés “Form 8814” en la línea de puntos al lado de la línea 21. Filing federal and state taxes for free Si presenta más de un Formulario 8814, incluya el total de los montos de la línea 12 de todos los Formularios 8814 en la línea 21 del Formulario 1040. Filing federal and state taxes for free Distribuciones de ganancias de capital y dividendos calificados. Filing federal and state taxes for free   Si se incluye alguna distribución de ganancias de capital en los ingresos de dividendos de su hijo, vea Capital gain distributions (Distribuciones de ganancias de capital) bajo Figuring Child's Income (Cómo calcular los ingresos del hijo) en la Parte 2 de la Publicación 929, en inglés. Filing federal and state taxes for free Si se incluye algún dividendo calificado en los ingresos de dividendos de su hijo, vea Qualified dividends (Dividendos calificados) bajo Figuring Child's Income (Cómo calcular los ingresos del hijo) en la Parte 2 de la Publicación 929, en inglés. Filing federal and state taxes for free Cómo Calcular el Impuesto Adicional Utilice la Parte II del Formulario 8814 para calcular el impuesto sobre los $2,000 de los intereses y dividendos de su hijo que no incluya usted en sus ingresos. Filing federal and state taxes for free Este impuesto se suma al impuesto calculado sobre los ingresos suyos. Filing federal and state taxes for free Dicho impuesto adicional es la cantidad que sea menor entre: El 10% (multiplicado por la cantidad de los ingresos brutos de su hijo menos $1,000) o $100. Filing federal and state taxes for free Incluya el monto de la línea 15 de todos los Formularios 8814 en el total de la línea 44 del Formulario 1040. Filing federal and state taxes for free Marque el recuadro a de la línea 44 del Formulario 1040. Filing federal and state taxes for free Figura 31-B. Filing federal and state taxes for free ¿Tiene que Utilizar el Formulario 8615 para Calcular los Impuestos de su Hijo? Please click here for the text description of the image. Filing federal and state taxes for free Figura 31-B. Filing federal and state taxes for free ¿Tiene que Utilizar el Formulario 8615 para Calcular los Impuestos de su Hijo? Impuesto para Determinados Hijos con Ingresos No Derivados del Trabajo Si el total de intereses, dividendos y otros ingresos no derivados del trabajo de un hijo sobrepasa $2,000, una parte de dichos ingresos podría estar sujeta a la misma tasa impositiva que la de sus padres en lugar de estar sujeta a la tasa del hijo. Filing federal and state taxes for free Si el padre o la madre no elige, o no puede elegir, incluir los ingresos del hijo en su declaración, utilice el Formulario 8615 para calcular los impuestos del hijo. Filing federal and state taxes for free Adjunte el formulario completado al Formulario 1040 o al Formulario 1040A del hijo. Filing federal and state taxes for free Cuándo se tiene que presentar el Formulario 8615. Filing federal and state taxes for free   El Formulario 8615 tiene que presentarse para un hijo si se dan todas las siguientes condiciones: Los ingresos del hijo no derivados del trabajo eran superiores a $2,000. Filing federal and state taxes for free El hijo está obligado a presentar una declaración para 2013. Filing federal and state taxes for free Dicho hijo: Era menor de 18 años de edad al final del año, Tenía 18 años a finales del año y su ingreso del trabajo no constituía más de la mitad de su manutención o Era estudiante a tiempo completo mayor de 18 años y menor de 24 años al finalizar el año y su ingreso del trabajo no constituía más de la mitad de la manutención suya. Filing federal and state taxes for free Por lo menos uno de los padres del hijo estaba vivo al finalizar el año 2013. Filing federal and state taxes for free El hijo no presenta una declaración conjunta para 2013. Filing federal and state taxes for free Estas condiciones se hallan también en la Figura 31-B. Filing federal and state taxes for free Ingreso del trabajo. Filing federal and state taxes for free   El ingreso del trabajo incluye sueldos, salarios, propinas y otras remuneraciones recibidas por servicios personales que usted prestó. Filing federal and state taxes for free No incluye los ingresos no derivados del trabajo según se define más adelante en este capítulo. Filing federal and state taxes for free Manutención. Filing federal and state taxes for free   La manutención de su hijo incluye todas las cantidades gastadas para proveerle alimentos, alojamiento, ropa, educación, cuidado médico y dental, recreación, transporte y necesidades similares. Filing federal and state taxes for free Al calcular la manutención de su hijo, incluya aquélla proporcionada por usted, su hijo y otras personas. Filing federal and state taxes for free Sin embargo, no se considera como manutención una beca que su hijo haya recibido si éste es estudiante a tiempo completo. Filing federal and state taxes for free Vea el capítulo 3 para más detalles acerca de la manutención. Filing federal and state taxes for free Determinados cumpleaños el 1 de enero. Filing federal and state taxes for free   Utilice la siguiente tabla para saber si determinados hijos con cumpleaños en el 1 de enero cumplen la condición 3 bajo Cuándo se tiene que presentar el Formulario 8615. Filing federal and state taxes for free    SI un hijo nació. Filing federal and state taxes for free . Filing federal and state taxes for free . Filing federal and state taxes for free ENTONCES, al finalizar 2013, se considera que el hijo tiene. Filing federal and state taxes for free . Filing federal and state taxes for free . Filing federal and state taxes for free el 1 de enero de 1996 18 años* el 1 de enero de 1995 19 años** el 1 de enero de 1990 24 años*** *Este hijo no es menor de 18 años. Filing federal and state taxes for free El hijo cumple la condición 3 sólo si éste no tuvo ingresos derivados del trabajo superiores a más de la mitad de la manutención suya. Filing federal and state taxes for free  **El hijo cumple la condición 3 sólo si éste era estudiante a tiempo completo y no tuvo ingresos derivados del trabajo superiores a más de la mitad de la manutención suya. Filing federal and state taxes for free  ***No utilice el Formulario 8615 para este hijo. Filing federal and state taxes for free Cómo Facilitar Información sobre los Padres (líneas A-C del Formulario 8615) En las líneas A y B del Formulario 8615, escriba el nombre y número de Seguro Social de los padres. Filing federal and state taxes for free (Si los padres presentaron una declaración conjunta, escriba el nombre y número de Seguro Social que aparezca primero en la declaración conjunta). Filing federal and state taxes for free En la línea C, marque el recuadro correspondiente al estado civil para efectos de la declaración del padre o de la madre. Filing federal and state taxes for free Vea Cómo Saber si se Tiene que Utilizar la Declaración del Padre o de la Madre al principio de este capítulo para información sobre qué información de la declaración de los padres tiene que utilizar para llenar el Formulario 8615. Filing federal and state taxes for free Padre o madre con año tributario distinto. Filing federal and state taxes for free   Si el padre o la madre y el hijo no tienen el mismo año tributario, complete el Formulario 8615 utilizando la información de la declaración del padre o de la madre para el año tributario que finalice durante el año tributario del hijo. Filing federal and state taxes for free Si no se obtiene a tiempo la información de la declaración del padre o de la madre. Filing federal and state taxes for free   Si la información necesaria de la declaración de los padres no se obtiene para la fecha de vencimiento del plazo de entrega de la declaración del hijo (normalmente el 15 de abril), puede utilizar cálculos aproximados para presentar la declaración. Filing federal and state taxes for free   Puede utilizar cualquier cálculo aproximado razonable. Filing federal and state taxes for free Dicho cálculo puede derivarse de información de la declaración del año anterior. Filing federal and state taxes for free Si utiliza un cálculo aproximado en el Formulario 8615, anote en inglés, “Estimated” (Aproximado) en la línea junto a dicha cantidad. Filing federal and state taxes for free    Cuando obtenga la información correcta, presente una declaración enmendada utilizando el Formulario 1040X, Amended U. Filing federal and state taxes for free S. Filing federal and state taxes for free Individual Income Tax Return (Declaración enmendada de impuestos sobre el ingreso personal de los Estados Unidos), en inglés. Filing federal and state taxes for free   En vez de utilizar cálculos aproximados, quizás pueda conseguir una prórroga automática de 6 meses para presentar la declaración de impuestos si para la fecha de vencimiento del plazo de entrega de la misma, presenta el Formulario 4868(SP), Solicitud de Prórroga Automática para Presentar la Declaración del Impuesto sobre el Ingreso Personal de los Estados Unidos (o el Formulario 4868, en inglés). Filing federal and state taxes for free Las prórrogas se explican en el capítulo 1 . Filing federal and state taxes for free Paso 1. Filing federal and state taxes for free Cómo Calcular los Ingresos Netos No Derivados del Trabajo del Hijo (Parte I del Formulario 8615) Al calcular el impuesto de un hijo utilizando el Formulario 8615, el primer paso es calcular los ingresos netos no derivados del trabajo del hijo. Filing federal and state taxes for free Para hacerlo, utilice la Parte I del Formulario 8615. Filing federal and state taxes for free Línea 1 (ingresos no derivados del trabajo). Filing federal and state taxes for free   Si el hijo no recibió ingresos del trabajo, anote en esta línea los ingresos brutos ajustados indicados en la declaración del hijo. Filing federal and state taxes for free Los ingresos brutos ajustados aparecen en la línea 38 del Formulario 1040 o en la línea 22 del Formulario 1040A. Filing federal and state taxes for free No se puede utilizar el Formulario 1040EZ si se tiene que presentar el Formulario 8615. Filing federal and state taxes for free   Si el hijo sí recibió ingresos del trabajo, calcule la cantidad a anotar en la línea 1 del Formulario 8615 utilizando la hoja de trabajo de las instrucciones del formulario. Filing federal and state taxes for free   No obstante, si el hijo: ha excluido de la declaración algunos ingresos ganados en el extranjero, ha deducido alguna pérdida del trabajo por cuenta propia o ha deducido alguna pérdida neta de operación de otro año, utilice la Alternate Worksheet (Hoja de trabajo alternativa) para la línea 1 del Formulario 8615 que se encuentra en la Publicación 929, en inglés, para calcular la cantidad a anotar en la línea 1 del Formulario 8615. Filing federal and state taxes for free Definición de los ingresos no derivados del trabajo. Filing federal and state taxes for free   Los ingresos no derivados del trabajo generalmente son todos los ingresos que no sean sueldos, salarios ni otras cantidades recibidas como pago por trabajo que de hecho se haya realizado. Filing federal and state taxes for free Dichos ingresos abarcan los intereses tributables, dividendos (inclusive las distribuciones de ganancias de capital), ganancias de capital, compensación por desempleo, la parte sujeta a impuestos de pagos del Seguro Social y pensiones y determinadas distribuciones de fideicomisos. Filing federal and state taxes for free Además, los ingresos no derivados del trabajo abarcan cantidades derivadas de bienes que el hijo haya adquirido con ingresos del trabajo (como intereses sobre una cuenta de ahorros en la que el hijo haya depositado sueldos). Filing federal and state taxes for free Ingresos no sujetos a impuestos. Filing federal and state taxes for free   Para este fin, los ingresos no derivados del trabajo sólo abarcan cantidades que su hijo tenga que incluir en el total de ingresos. Filing federal and state taxes for free No se incluyen los ingresos no tributables no derivados del trabajo, tales como los intereses exentos de impuestos y la parte no tributable de pagos del Seguro Social y pensiones. Filing federal and state taxes for free Ingresos procedentes de bienes recibidos como regalo. Filing federal and state taxes for free   Los ingresos no derivados del trabajo de un hijo abarcan todo ingreso generado por bienes que pertenezcan al hijo. Filing federal and state taxes for free Esto es así aun si se le traspasaron los bienes al hijo, independientemente de cuándo se traspasaron o se compraron dichos bienes ni quién los traspasó. Filing federal and state taxes for free   Los ingresos no derivados del trabajo de un hijo incluyen ingresos generados por bienes dados al hijo como regalo. Filing federal and state taxes for free Esto incluye regalos dados al hijo por los abuelos o cualquier otra persona y regalos dados conforme a la Uniform Gift to Minors Act (Ley de Uniformidad Respecto a Regalos a Menores). Filing federal and state taxes for free Ejemplo. Filing federal and state taxes for free Amanda Naranjo, de 13 años de edad, recibió los siguientes ingresos: Dividendos — $800 Salarios — $2,100 Intereses tributables — $1,200 Intereses exentos de impuestos — $100 Ganancias netas de capital — $100 Los dividendos eran dividendos calificados sobre acciones que le habían regalado sus abuelos. Filing federal and state taxes for free Los ingresos no derivados del trabajo de Amanda son $2,100. Filing federal and state taxes for free Éste es el total de dividendos ($800), intereses tributables ($1,200) y ganancias netas de capital ($100). Filing federal and state taxes for free Su salario se considera ingreso del trabajo, y no de ingreso no derivado del trabajo porque se le paga por un trabajo que de hecho se ha realizado. Filing federal and state taxes for free No se incluyen los intereses exentos de impuestos porque éstos no están sujetos a impuestos. Filing federal and state taxes for free Ingresos provenientes de fideicomisos. Filing federal and state taxes for free   Si el hijo es beneficiario de un fideicomiso, las distribuciones de intereses, dividendos, ganancias de capital y otros ingresos no derivados del trabajo tributables procedentes de dicho fideicomiso se consideran ingresos no derivados del trabajo del hijo. Filing federal and state taxes for free   No obstante, para llenar el Formulario 8615, una distribución tributable de un fideicomiso calificado establecido para casos de incapacidad no se considera ingresos no derivados del trabajo sino ingresos del trabajo. Filing federal and state taxes for free Línea 2 (deducciones). Filing federal and state taxes for free   Si el hijo no detalla las deducciones en el Anexo A del Formulario 1040, anote $2,000 en la línea 2. Filing federal and state taxes for free   Si el hijo sí detalla las deducciones, anote en la línea 2 la cantidad mayor entre: $1,000 más la parte de las deducciones detalladas del hijo de la línea 29 del Anexo A del Formulario 1040 que esté directamente relacionada con la generación de ingresos no derivados del trabajo anotados en la línea 1 o $2,000. Filing federal and state taxes for free Relación directa entre las deducciones y la generación de ingresos no derivados del trabajo. Filing federal and state taxes for free   Se considera que las deducciones detalladas están directamente relacionadas con la generación de ingresos no derivados del trabajo si las mismas corresponden a gastos pagados para generar o cobrar ingresos sujetos a impuestos o para administrar, conservar o mantener bienes cuyo fin es generar ingresos. Filing federal and state taxes for free Esos gastos abarcan cargos por custodia y servicios, cargos por servicios de cobro de intereses y dividendos tributables y determinados cargos por asesoramiento sobre inversiones. Filing federal and state taxes for free   Estos gastos se suman a otras deducciones detalladas misceláneas en el Anexo A (Formulario 1040). Filing federal and state taxes for free Sólo se puede deducir la cantidad que sea superior al 2% de los ingresos brutos ajustados del hijo. Filing federal and state taxes for free Vea el capítulo 28 para más información. Filing federal and state taxes for free Ejemplo 1. Filing federal and state taxes for free Roberto, de 12 años de edad, tiene ingresos no derivados del trabajo de $8,000, sin otros ingresos ni ajustes a los ingresos. Filing federal and state taxes for free Tiene deducciones detalladas de $300 (netas del límite del 2%) que están directamente relacionadas con sus ingresos no derivados del trabajo. Filing federal and state taxes for free Tiene ingresos brutos ajustados de $8,000 que se anotan en la línea 38 del Formulario 1040 y en la línea 1 del Formulario 8615. Filing federal and state taxes for free En la línea 2 se anotan $2,000 porque dicha cantidad supera la suma de $1,000 más las deducciones detalladas de $300 directamente relacionadas con la generación de ingresos de inversiones. Filing federal and state taxes for free Ejemplo 2. Filing federal and state taxes for free Elena, de 8 años de edad, tiene ingresos no derivados del trabajo de $16,000 y tiene una multa de $100 por retiro prematuro. Filing federal and state taxes for free No tiene otros ingresos. Filing federal and state taxes for free Tiene deducciones detalladas de $1,050 (netas del límite del 2%) que están directamente relacionadas con la generación de sus ingresos no derivados del trabajo. Filing federal and state taxes for free Sus ingresos brutos ajustados, anotados en la línea 1, son $15,900 ($16,000 − $100). Filing federal and state taxes for free La cantidad de la línea 2 es $2,050. Filing federal and state taxes for free Ésta es la cantidad mayor de: $1,000 más los $1,050 de deducciones detalladas directamente relacionadas con la generación de ingresos de inversiones o $2,000. Filing federal and state taxes for free Línea 3. Filing federal and state taxes for free   De la línea 1 reste la línea 2 y anote el resultado en esta línea. Filing federal and state taxes for free Si es cero o menos, no llene el resto del formulario. Filing federal and state taxes for free No obstante, tiene que adjuntar el Formulario 8615 a la declaración del hijo. Filing federal and state taxes for free Calcule el impuesto sobre los ingresos tributables del hijo de manera normal. Filing federal and state taxes for free Línea 4 (ingresos tributables del hijo). Filing federal and state taxes for free   Anote en la línea 4 los ingresos tributables del hijo provenientes de la línea 43 del Formulario 1040 o de la línea 27 del Formulario 1040A. Filing federal and state taxes for free   Sin embargo, si el hijo presenta el Formulario 2555 o el Formulario 2555-EZ para declarar la exclusión de ingresos ganados en el extranjero, la exclusión por concepto de vivienda o la deducción por concepto de vivienda, vea las Instrucciones del Formulario 8615 o la Publicación 929, ambas en inglés. Filing federal and state taxes for free Línea 5 (ingresos netos no derivados del trabajo). Filing federal and state taxes for free   Los ingresos netos no derivados del trabajo del hijo no pueden sobrepasar sus ingresos tributables. Filing federal and state taxes for free Anote en la línea 5 del Formulario 8615 la cantidad de la línea 3 o la línea 4, la que sea menor. Filing federal and state taxes for free Esta cantidad corresponde a los ingresos netos no derivados del trabajo del hijo. Filing federal and state taxes for free   Si es cero o menos, no llene el resto del formulario. Filing federal and state taxes for free No obstante, tiene que adjuntar el Formulario 8615 a la declaración del hijo. Filing federal and state taxes for free Calcule el impuesto sobre los ingresos tributables del hijo de manera normal. Filing federal and state taxes for free Paso 2. Filing federal and state taxes for free Cómo Calcular el Impuesto Provisional a la Tasa Impositiva de los Padres (Parte II del Formulario 8615) El siguiente paso al llenar el Formulario 8615 es calcular un impuesto provisional sobre los ingresos netos no derivados del trabajo del hijo utilizando la tasa impositiva del padre o de la madre. Filing federal and state taxes for free El impuesto provisional a la tasa impositiva del padre o de la madre es la diferencia entre el impuesto sobre los ingresos tributables del padre o de la madre calculados con los ingresos netos no derivados del trabajo del hijo (más los ingresos netos no derivados del trabajo de cualquier otro hijo cuyo Formulario 8615 incluya la información de la declaración de impuestos del padre o de la madre) y el impuesto calculado sin dichos ingresos. Filing federal and state taxes for free Al calcular el impuesto provisional a la tasa impositiva del padre o de la madre en el Formulario 8615, no vuelva a calcular las exclusiones, deducciones ni créditos en la declaración del padre o de la madre debido a los ingresos netos no derivados del trabajo del hijo. Filing federal and state taxes for free Por ejemplo, no vuelva a calcular la deducción por gastos médicos. Filing federal and state taxes for free Calcule el impuesto provisional en las líneas 6 a 13 del Formulario 8615. Filing federal and state taxes for free Nota: Si el hijo o el padre o la madre tiene pérdidas o ganancias de capital, obtenga la Publicación 929, en inglés, para información que le será de ayuda al completar la Parte II del Formulario 8615. Filing federal and state taxes for free Línea 6 (ingresos tributables del padre o de la madre). Filing federal and state taxes for free   Anote en la línea 6 los ingresos tributables del padre o de la madre provenientes de la línea 43 del Formulario 1040, de la línea 27 del Formulario 1040A o la línea 6 del Formulario 1040EZ. Filing federal and state taxes for free   Si utilizó la Foreign Earned Income Tax Worksheet (Hoja de trabajo para el impuesto sobre los ingresos del trabajo en el extranjero) de las instrucciones del Formulario 1040 para calcular el impuesto correspondiente al padre o a la madre, anote la cantidad de la línea 3 de dicha hoja de trabajo en vez de los ingresos tributables del padre o de la madre. Filing federal and state taxes for free Línea 7 (ingresos netos no derivados del trabajo de otros hijos). Filing federal and state taxes for free   Si la información de la declaración del padre o de la madre se utiliza también en el Formulario 8615 de otro hijo, anote en la línea 7 el total de las cantidades de la línea 5 de los Formularios 8615 de todos los demás hijos. Filing federal and state taxes for free No incluya la cantidad de la línea 5 del Formulario 8615 que esté llenando. Filing federal and state taxes for free Ejemplo. Filing federal and state taxes for free Pablo y Juana del Pozo tienen tres hijos, Sandra, Geraldo y Miguel, quienes tienen que adjuntar el Formulario 8615 a sus declaraciones de impuestos respectivas. Filing federal and state taxes for free Los ingresos netos no derivados del trabajo de los hijos en la línea 5 de sus Formularios 8615 son: Sandra — $800 Geraldo — $600 Miguel — $1,000 La línea 7 del Formulario 8615 de Sandra indicará $1,600, o sea, el total de las cantidades anotadas en la línea 5 de los Formularios 8615 de Geraldo y Miguel. Filing federal and state taxes for free La línea 7 del Formulario 8615 de Geraldo indicará $1,800 ($800 + $1,000). Filing federal and state taxes for free La línea 7 del Formulario 8615 de Miguel indicará $1,400 ($800 + $600). Filing federal and state taxes for free Si no está disponible la información de los otros hijos. Filing federal and state taxes for free   Si no está disponible la cantidad de los ingresos netos no derivados del trabajo de los otros hijos antes de que venza el plazo para presentar la declaración, preséntela anotando cálculos aproximados o solicite una prórroga del plazo para presentarla. Filing federal and state taxes for free Vea Si no se obtiene a tiempo la información de la declaración del padre o de la madre , anteriormente. Filing federal and state taxes for free Línea 11 (impuesto provisional). Filing federal and state taxes for free   Reste la línea 10 de la línea 9 y anote el resultado en esta línea. Filing federal and state taxes for free Éste es el impuesto provisional. Filing federal and state taxes for free   Si la línea 7 está en blanco, ignore las líneas 12a y 12b y anote en la línea 13 la cantidad proveniente de la línea 11. Filing federal and state taxes for free Ignore asimismo el tema siguiente que trata de las líneas 12a y 12b. Filing federal and state taxes for free Líneas 12a y 12b (dividiendo el impuesto provisional). Filing federal and state taxes for free   Si anota alguna cantidad en la línea 7 (fuera de cero), divida el impuesto provisional indicado en la línea 11 entre los hijos según la participación de cada hijo en el total de los ingresos netos no derivados del trabajo. Filing federal and state taxes for free Esto se hace en las líneas 12a, 12b y 13. Filing federal and state taxes for free Sume la cantidad de la línea 7 a la de la línea 5 y anote el total en la línea 12a. Filing federal and state taxes for free Divida la cantidad de la línea 5 entre la de la línea 12a y anote el resultado, como número decimal, en la línea 12b. Filing federal and state taxes for free Ejemplo. Filing federal and state taxes for free En el ejemplo anterior bajo Línea 7 (ingresos netos no derivados del trabajo de otros hijos), el Formulario 8615 de Sandra indica $1,600 en la línea 7. Filing federal and state taxes for free La cantidad anotada en la línea 12a es $2,400, o sea, el total de las cantidades provenientes de las líneas 5 y 7 ($800 + $1,600). Filing federal and state taxes for free El número decimal en la línea 12b es . Filing federal and state taxes for free 333, calculado de la siguienta manera y redondeado hasta tres decimales:   $800 = . Filing federal and state taxes for free 333     $2,400   Paso 3. Filing federal and state taxes for free Cómo Calcular el Impuesto del Hijo (Parte III del Formulario 8615) El último paso para calcular el impuesto de su hijo utilizando el Formulario 8615 es determinar la cantidad mayor entre: El total de: La parte del impuesto provisional correspondiente al hijo basado en la tasa impositiva del padre o de la madre, más El impuesto sobre los ingresos tributables del hijo que sean superiores a los ingresos netos no derivados del trabajo, calculado a la tasa impositiva del hijo o El impuesto sobre los ingresos tributables del hijo calculado a la tasa impositiva del hijo. Filing federal and state taxes for free Éste es el impuesto del hijo. Filing federal and state taxes for free Se calcula en las líneas 14 a 18 del Formulario 8615. Filing federal and state taxes for free Impuesto mínimo alternativo. Filing federal and state taxes for free   Un hijo puede estar sujeto al impuesto mínimo alternativo (AMT, por sus siglas en inglés) si cuenta con determinados elementos que reciben un trato preferente conforme a la ley tributaria. Filing federal and state taxes for free Vea el tema titulado Impuesto Mínimo Alternativo (AMT) , en el capítulo 30. Filing federal and state taxes for free    Para información adicional acerca de quién tiene que pagar el AMT y cómo calcularlo, vea el Formulario 6251, Alternative Minimum Tax—Individuals (Impuesto mínimo alternativo—individuos), en inglés. Filing federal and state taxes for free Para información sobre límites especiales aplicables a un hijo que presente el Formulario 6251, vea Certain Children Under Age 24 (Determinados hijos menores de 24 años de edad), en las Instrucciones para el Formulario 6251, en inglés. Filing federal and state taxes for free Prev  Up  Next   Home   More Online Publications
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The Filing Federal And State Taxes For Free

Filing federal and state taxes for free Publication 537 - Main Content Table of Contents What Is an Installment Sale?Special rule. Filing federal and state taxes for free 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. Filing federal and state taxes for free Several assets. Filing federal and state taxes for free Special situations. Filing federal and state taxes for free Schedule D (Form 1040). Filing federal and state taxes for free Form 4797. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free The installment sales method cannot be used for the following. Filing federal and state taxes for free Sale of inventory. Filing federal and state taxes for free   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. Filing federal and state taxes for free See Sale of a Business under Other Rules, later. Filing federal and state taxes for free Dealer sales. Filing federal and state taxes for free   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. Filing federal and state taxes for free This rule also applies to real property held for sale to customers in the ordinary course of a trade or business. Filing federal and state taxes for free However, the rule does not apply to an installment sale of property used or produced in farming. Filing federal and state taxes for free Special rule. Filing federal and state taxes for free   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. Filing federal and state taxes for free For more information, see section 453(l). Filing federal and state taxes for free Stock or securities. Filing federal and state taxes for free   You cannot use the installment method to report gain from the sale of stock or securities traded on an established securities market. Filing federal and state taxes for free You must report the entire gain on the sale in the year in which the trade date falls. Filing federal and state taxes for free Installment obligation. Filing federal and state taxes for free   The buyer's obligation to make future payments to you can be in the form of a deed of trust, note, land contract, mortgage, or other evidence of the buyer's debt to you. Filing federal and state taxes for free 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. Filing federal and state taxes for free See Electing Out of the Installment Method under Other Rules, later, for information on recognizing the entire gain in the year of sale. Filing federal and state taxes for free Sale at a loss. Filing federal and state taxes for free   If your sale results in a loss, you cannot use the installment method. Filing federal and state taxes for free If the loss is on an installment sale of business or investment property, you can deduct it only in the tax year of sale. Filing federal and state taxes for free Unstated interest. Filing federal and state taxes for free   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. Filing federal and state taxes for free See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. Filing federal and state taxes for free 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. Filing federal and state taxes for free Each payment on an installment sale usually consists of the following three parts. Filing federal and state taxes for free Interest income. Filing federal and state taxes for free Return of your adjusted basis in the property. Filing federal and state taxes for free Gain on the sale. Filing federal and state taxes for free In each year you receive a payment, you must include in income both the interest part and the part that is your gain on the sale. Filing federal and state taxes for free You do not include in income the part that is the return of your basis in the property. Filing federal and state taxes for free Basis is the amount of your investment in the property for installment sale purposes. Filing federal and state taxes for free Interest Income You must report interest as ordinary income. Filing federal and state taxes for free Interest is generally not included in a down payment. Filing federal and state taxes for free However, you may have to treat part of each later payment as interest, even if it is not called interest in your agreement with the buyer. Filing federal and state taxes for free Interest provided in the agreement is called stated interest. Filing federal and state taxes for free If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. Filing federal and state taxes for free See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. Filing federal and state taxes for free 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. Filing federal and state taxes for free A tax-free return of your adjusted basis in the property, and Your gain (referred to as installment sale income on Form 6252). Filing federal and state taxes for free Figuring adjusted basis for installment sale purposes. Filing federal and state taxes for free   You can use Worksheet A to figure your adjusted basis in the property for installment sale purposes. Filing federal and state taxes for free When you have completed the worksheet, you will also have determined the gross profit percentage necessary to figure your installment sale income (gain) for this year. Filing federal and state taxes for free Worksheet A. Filing federal and state taxes for free Figuring Adjusted Basis and Gross Profit Percentage 1. Filing federal and state taxes for free Enter the selling price for the property   2. Filing federal and state taxes for free Enter your adjusted basis for the property     3. Filing federal and state taxes for free Enter your selling expenses     4. Filing federal and state taxes for free Enter any depreciation recapture     5. Filing federal and state taxes for free Add lines 2, 3, and 4. Filing federal and state taxes for free  This is your adjusted basis for installment sale purposes   6. Filing federal and state taxes for free Subtract line 5 from line 1. Filing federal and state taxes for free If zero or less, enter -0-. Filing federal and state taxes for free  This is your gross profit     If the amount entered on line 6 is zero, stop here. Filing federal and state taxes for free You cannot use the installment method. Filing federal and state taxes for free   7. Filing federal and state taxes for free Enter the contract price for the property   8. Filing federal and state taxes for free Divide line 6 by line 7. Filing federal and state taxes for free This is your gross profit percentage   Selling price. Filing federal and state taxes for free   The selling price is the total cost of the property to the buyer and includes any of the following. Filing federal and state taxes for free Any money you are to receive. Filing federal and state taxes for free 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). Filing federal and state taxes for free Any existing mortgage or other debt the buyer pays, assumes, or takes (a note, mortgage, or any other liability, such as a lien, accrued interest, or taxes you owe on the property). Filing federal and state taxes for free Any of your selling expenses the buyer pays. Filing federal and state taxes for free   Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. Filing federal and state taxes for free Adjusted basis for installment sale purposes. Filing federal and state taxes for free   Your adjusted basis is the total of the following three items. Filing federal and state taxes for free Adjusted basis. Filing federal and state taxes for free Selling expenses. Filing federal and state taxes for free Depreciation recapture. Filing federal and state taxes for free Adjusted basis. Filing federal and state taxes for free   Basis is your investment in the property for installment sale purposes. Filing federal and state taxes for free The way you figure basis depends on how you acquire the property. Filing federal and state taxes for free The basis of property you buy is generally its cost. Filing federal and state taxes for free The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. Filing federal and state taxes for free   While you own property, various events may change your original basis. Filing federal and state taxes for free Some events, such as adding rooms or making permanent improvements, increase basis. Filing federal and state taxes for free Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. Filing federal and state taxes for free The result is adjusted basis. Filing federal and state taxes for free   For more information on how to figure basis and adjusted basis, see Publication 551. Filing federal and state taxes for free 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. Filing federal and state taxes for free Selling expenses. Filing federal and state taxes for free   Selling expenses relate to the sale of the property. Filing federal and state taxes for free They include commissions, attorney fees, and any other expenses paid on the sale. Filing federal and state taxes for free Selling expenses are added to the basis of the sold property. Filing federal and state taxes for free Depreciation recapture. Filing federal and state taxes for free   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. Filing federal and state taxes for free See Depreciation Recapture Income under Other Rules, later. Filing federal and state taxes for free Gross profit. Filing federal and state taxes for free   Gross profit is the total gain you report on the installment method. Filing federal and state taxes for free   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. Filing federal and state taxes for free If the property you sold was your home, subtract from the gross profit any gain you can exclude. Filing federal and state taxes for free See Sale of Your Home , later, under Reporting Installment Sale Income. Filing federal and state taxes for free Contract price. Filing federal and state taxes for free   Contract price equals: The selling price, minus The mortgages, debts, and other liabilities assumed or taken by the buyer, plus The amount by which the mortgages, debts, and other liabilities assumed or taken by the buyer exceed your adjusted basis for installment sale purposes. Filing federal and state taxes for free Gross profit percentage. Filing federal and state taxes for free   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. Filing federal and state taxes for free This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. Filing federal and state taxes for free   The gross profit percentage generally remains the same for each payment you receive. Filing federal and state taxes for free However, see the Example under Selling Price Reduced, later, for a situation where the gross profit percentage changes. Filing federal and state taxes for free Example. Filing federal and state taxes for free You sell property at a contract price of $6,000 and your gross profit is $1,500. Filing federal and state taxes for free Your gross profit percentage is 25% ($1,500 ÷ $6,000). Filing federal and state taxes for free After subtracting interest, you report 25% of each payment, including the down payment, as installment sale income from the sale for the tax year you receive the payment. Filing federal and state taxes for free The remainder (balance) of each payment is the tax-free return of your adjusted basis. Filing federal and state taxes for free Amount to report as installment sale income. Filing federal and state taxes for free   Multiply the payments you receive each year (less interest) by the gross profit percentage. Filing federal and state taxes for free The result is your installment sale income for the tax year. Filing federal and state taxes for free In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. Filing federal and state taxes for free A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. Filing federal and state taxes for free For a detailed discussion, see Payments Received or Considered Received under Other Rules, later. Filing federal and state taxes for free Selling Price Reduced If the selling price is reduced at a later date, the gross profit on the sale also will change. Filing federal and state taxes for free You then must refigure the gross profit percentage for the remaining payments. Filing federal and state taxes for free Refigure your gross profit using Worksheet B. Filing federal and state taxes for free You will spread any remaining gain over future installments. Filing federal and state taxes for free Worksheet B. Filing federal and state taxes for free New Gross Profit Percentage — Selling Price Reduced 1. Filing federal and state taxes for free Enter the reduced selling  price for the property   2. Filing federal and state taxes for free Enter your adjusted  basis for the  property     3. Filing federal and state taxes for free Enter your selling  expenses     4. Filing federal and state taxes for free Enter any depreciation  recapture     5. Filing federal and state taxes for free Add lines 2, 3, and 4. Filing federal and state taxes for free   6. Filing federal and state taxes for free Subtract line 5 from line 1. Filing federal and state taxes for free  This is your adjusted  gross profit   7. Filing federal and state taxes for free Enter any installment sale  income reported in  prior year(s)   8. Filing federal and state taxes for free Subtract line 7 from line 6   9. Filing federal and state taxes for free Future installments   10. Filing federal and state taxes for free Divide line 8 by line 9. Filing federal and state taxes for free  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. Filing federal and state taxes for free Example. Filing federal and state taxes for free In 2011, you sold land with a basis of $40,000 for $100,000. Filing federal and state taxes for free Your gross profit was $60,000. Filing federal and state taxes for free You received a $20,000 down payment and the buyer's note for $80,000. Filing federal and state taxes for free The note provides for four annual payments of $20,000 each, plus 8% interest, beginning in 2012. Filing federal and state taxes for free Your gross profit percentage is 60%. Filing federal and state taxes for free You reported a gain of $12,000 on each payment received in 2011 and 2012. Filing federal and state taxes for free 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. Filing federal and state taxes for free The new gross profit percentage, 46. Filing federal and state taxes for free 67%, is figured on Example—Worksheet B. Filing federal and state taxes for free You will report a gain of $7,000 (46. Filing federal and state taxes for free 67% of $15,000) on each of the $15,000 installments due in 2013, 2014, and 2015. Filing federal and state taxes for free Example — Worksheet B. Filing federal and state taxes for free New Gross Profit Percentage — Selling Price Reduced 1. Filing federal and state taxes for free Enter the reduced selling  price for the property 85,000 2. Filing federal and state taxes for free Enter your adjusted  basis for the  property 40,000   3. Filing federal and state taxes for free Enter your selling  expenses -0-   4. Filing federal and state taxes for free Enter any depreciation  recapture -0-   5. Filing federal and state taxes for free Add lines 2, 3, and 4. Filing federal and state taxes for free 40,000 6. Filing federal and state taxes for free Subtract line 5 from line 1. Filing federal and state taxes for free  This is your adjusted  gross profit 45,000 7. Filing federal and state taxes for free Enter any installment sale  income reported in  prior year(s) 24,000 8. Filing federal and state taxes for free Subtract line 7 from line 6 21,000 9. Filing federal and state taxes for free Future installments 45,000 10. Filing federal and state taxes for free Divide line 8 by line 9. Filing federal and state taxes for free  This is your new gross profit percentage* 46. Filing federal and state taxes for free 67% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Filing federal and state taxes for free 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. Filing federal and state taxes for free You also will have to report the installment sale income on Schedule D (Form 1040), Capital Gains and Losses, or Form 4797, or both. Filing federal and state taxes for free See Schedule D (Form 1040) and Form 4797 , later. Filing federal and state taxes for free If the property was your main home, you may be able to exclude part or all of the gain. Filing federal and state taxes for free See Sale of Your Home , later. Filing federal and state taxes for free 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. Filing federal and state taxes for free Attach it to your tax return for each year. Filing federal and state taxes for free Form 6252 will help you determine the gross profit, contract price, gross profit percentage, and installment sale income. Filing federal and state taxes for free Which parts to complete. Filing federal and state taxes for free   Which part to complete depends on whether you are filing the form for the year of sale or a later year. Filing federal and state taxes for free Year of sale. Filing federal and state taxes for free   Complete lines 1 through 4, Part I, and Part II. Filing federal and state taxes for free If you sold property to a related party during the year, also complete Part III. Filing federal and state taxes for free Later years. Filing federal and state taxes for free   Complete lines 1 through 4 and Part II for any year in which you receive a payment from an installment sale. Filing federal and state taxes for free   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. Filing federal and state taxes for free (After December 31, 1986, the installment method is not available for the sale of marketable securities. Filing federal and state taxes for free ) Complete lines 1 through 4 and Part II for any year in which you receive a payment from the sale. Filing federal and state taxes for free Complete Part III unless you received the final payment during the tax year. Filing federal and state taxes for free   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. Filing federal and state taxes for free 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. Filing federal and state taxes for free Complete Part III for the 2 years after the year of sale unless you received the final payment during the tax year. Filing federal and state taxes for free 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). Filing federal and state taxes for free 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. Filing federal and state taxes for free Your gain is long-term if you owned the property for more than 1 year when you sold it. Filing federal and state taxes for free 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. Filing federal and state taxes for free All or part of any gain from the disposition of the property may be ordinary gain from depreciation recapture. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free ” Sale of Your Home If you sell your home, you may be able to exclude all or part of the gain on the sale. Filing federal and state taxes for free See Publication 523 for information about excluding the gain. Filing federal and state taxes for free If the sale is an installment sale, any gain you exclude is not included in gross profit when figuring your gross profit percentage. Filing federal and state taxes for free Seller-financed mortgage. Filing federal and state taxes for free   If you finance the sale of your home to an individual, both you and the buyer may have to follow special reporting procedures. Filing federal and state taxes for free   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. Filing federal and state taxes for free   When deducting the mortgage interest, the buyer must write your name, address, and SSN on line 11 of Schedule A (Form 1040), Itemized Deductions. Filing federal and state taxes for free   If either person fails to include the other person's SSN, a $50 penalty will be assessed. Filing federal and state taxes for free Other Rules The rules discussed in this part of the publication apply only in certain circumstances or to certain types of property. Filing federal and state taxes for free The following topics are discussed. Filing federal and state taxes for free Electing out of the installment method. Filing federal and state taxes for free Payments received or considered received. Filing federal and state taxes for free Escrow account. Filing federal and state taxes for free Depreciation recapture income. Filing federal and state taxes for free Sale to a related person. Filing federal and state taxes for free Like-kind exchange. Filing federal and state taxes for free Contingent payment sale. Filing federal and state taxes for free Single sale of several assets. Filing federal and state taxes for free Sale of a business. Filing federal and state taxes for free Unstated interest and original issue discount. Filing federal and state taxes for free Disposition of an installment obligation. Filing federal and state taxes for free Repossession. Filing federal and state taxes for free Interest on deferred tax. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free Notes, mortgages, and land contracts are examples of obligations that are included at FMV. Filing federal and state taxes for free You must figure the FMV of the buyer's installment obligation, whether or not you would actually be able to sell it. Filing federal and state taxes for free 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). Filing federal and state taxes for free Example. Filing federal and state taxes for free You sold a parcel of land for $50,000. Filing federal and state taxes for free 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. Filing federal and state taxes for free The buyer gave you a note for $40,000. Filing federal and state taxes for free The note had an FMV of $40,000. Filing federal and state taxes for free You paid a commission of 6%, or $3,000, to a broker for negotiating the sale. Filing federal and state taxes for free The land cost $25,000, and you owned it for more than one year. Filing federal and state taxes for free You decide to elect out of the installment method and report the entire gain in the year of sale. Filing federal and state taxes for free Gain realized:     Selling price $50,000 Minus: Property's adj. Filing federal and state taxes for free 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. Filing federal and state taxes for free basis $25,000     Commission 3,000 28,000 Gain recognized $22,000 The recognized gain of $22,000 is long-term capital gain. Filing federal and state taxes for free 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. Filing federal and state taxes for free The interest on the note is ordinary income and is reported as interest income each year. Filing federal and state taxes for free How to elect out. Filing federal and state taxes for free   To make this election, do not report your sale on Form 6252. Filing federal and state taxes for free Instead, report it on Form 8949, Sales and Other Dispositions of Capital Assets, Form 4797, or both. Filing federal and state taxes for free When to elect out. Filing federal and state taxes for free   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. Filing federal and state taxes for free Automatic six-month extension. Filing federal and state taxes for free   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). Filing federal and state taxes for free Write “Filed pursuant to section 301. Filing federal and state taxes for free 9100-2” at the top of the amended return and file it where the original return was filed. Filing federal and state taxes for free Revoking the election. Filing federal and state taxes for free   Once made, the election can be revoked only with IRS approval. Filing federal and state taxes for free A revocation is retroactive. Filing federal and state taxes for free You will not be allowed to revoke the election if either of the following applies. Filing federal and state taxes for free One of the purposes is to avoid federal income tax. Filing federal and state taxes for free The tax year in which any payment was received has closed. Filing federal and state taxes for free Payments Received or Considered Received You must figure your gain each year on the payments you receive, or are treated as receiving, from an installment sale. Filing federal and state taxes for free In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. Filing federal and state taxes for free These situations occur when the buyer assumes or pays any of your debts, such as a loan, or pays any of your expenses, such as a sales commission. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free Include these expenses in the selling and contract prices when figuring the gross profit percentage. Filing federal and state taxes for free 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. Filing federal and state taxes for free Mortgage not more than basis. Filing federal and state taxes for free   If the buyer assumes a mortgage that is not more than your installment sale basis in the property, it is not considered a payment to you. Filing federal and state taxes for free It is considered a recovery of your basis. Filing federal and state taxes for free The contract price is the selling price minus the mortgage. Filing federal and state taxes for free Example. Filing federal and state taxes for free You sell property with an adjusted basis of $19,000. Filing federal and state taxes for free You have selling expenses of $1,000. Filing federal and state taxes for free The buyer assumes your existing mortgage of $15,000 and agrees to pay you $10,000 (a cash down payment of $2,000 and $2,000 (plus 12% interest) in each of the next 4 years). Filing federal and state taxes for free The selling price is $25,000 ($15,000 + $10,000). Filing federal and state taxes for free Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). Filing federal and state taxes for free The contract price is $10,000 ($25,000 − $15,000 mortgage). Filing federal and state taxes for free Your gross profit percentage is 50% ($5,000 ÷ $10,000). Filing federal and state taxes for free You report half of each $2,000 payment received as gain from the sale. Filing federal and state taxes for free You also report all interest you receive as ordinary income. Filing federal and state taxes for free Mortgage more than basis. Filing federal and state taxes for free   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. Filing federal and state taxes for free The part of the mortgage greater than your basis is treated as a payment received in the year of sale. Filing federal and state taxes for free   To figure the contract price, subtract the mortgage from the selling price. Filing federal and state taxes for free This is the total amount (other than interest) you will receive directly from the buyer. Filing federal and state taxes for free Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). Filing federal and state taxes for free The contract price is then the same as your gross profit from the sale. Filing federal and state taxes for free    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. Filing federal and state taxes for free Example. Filing federal and state taxes for free The selling price for your property is $9,000. Filing federal and state taxes for free The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. Filing federal and state taxes for free Your adjusted basis in the property is $4,400. Filing federal and state taxes for free You have selling expenses of $600, for a total installment sale basis of $5,000. Filing federal and state taxes for free The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). Filing federal and state taxes for free This amount is included in the contract price and treated as a payment received in the year of sale. Filing federal and state taxes for free The contract price is $4,000: Selling price $9,000 Minus: Mortgage (6,000) Amount actually received $3,000 Add difference:   Mortgage $6,000   Minus: Installment sale basis 5,000 1,000 Contract price $4,000       Your gross profit on the sale is also $4,000: Selling price $9,000 Minus: Installment sale basis (5,000) Gross profit $4,000 Your gross profit percentage is 100%. Filing federal and state taxes for free Report 100% of each payment (less interest) as gain from the sale. Filing federal and state taxes for free Treat the $1,000 difference between the mortgage and your installment sale basis as a payment and report 100% of it as gain in the year of sale. Filing federal and state taxes for free Mortgage Canceled If the buyer of your property is the person who holds the mortgage on it, your debt is canceled, not assumed. Filing federal and state taxes for free You are considered to receive a payment equal to the outstanding canceled debt. Filing federal and state taxes for free Example. Filing federal and state taxes for free Mary Jones loaned you $45,000 in 2009 in exchange for a note and a mortgage in a tract of land you owned. Filing federal and state taxes for free On April 4, 2013, she bought the land for $70,000. Filing federal and state taxes for free At that time, $30,000 of her loan to you was outstanding. Filing federal and state taxes for free 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. Filing federal and state taxes for free She did not assume an existing mortgage. Filing federal and state taxes for free She canceled the $30,000 debt you owed her. Filing federal and state taxes for free You are considered to have received a $30,000 payment at the time of the sale. Filing federal and state taxes for free 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. Filing federal and state taxes for free If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. Filing federal and state taxes for free Compare the debt to your installment sale basis in the property being sold. Filing federal and state taxes for free If the debt is less than your installment sale basis, none of it is treated as a payment. Filing federal and state taxes for free If it is more, only the difference is treated as a payment. Filing federal and state taxes for free If the buyer assumes more than one debt, any part of the total that is more than your installment sale basis is considered a payment. Filing federal and state taxes for free These rules are the same as the rules discussed earlier under Buyer Assumes Mortgage . Filing federal and state taxes for free However, they apply only to the following types of debt the buyer assumes. Filing federal and state taxes for free Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. Filing federal and state taxes for free Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. Filing federal and state taxes for free If the buyer assumes any other type of debt, such as a personal loan or your legal fees relating to the sale, it is treated as if the buyer had paid off the debt at the time of the sale. Filing federal and state taxes for free The value of the assumed debt is then considered a payment to you in the year of sale. Filing federal and state taxes for free 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. Filing federal and state taxes for free However, see Like-Kind Exchange , later. Filing federal and state taxes for free Generally, the amount of the payment is the property's FMV on the date you receive it. Filing federal and state taxes for free Exception. Filing federal and state taxes for free   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. Filing federal and state taxes for free See Unstated Interest and Original Issue Discount (OID) , later. Filing federal and state taxes for free Debt not payable on demand. Filing federal and state taxes for free   Any evidence of debt you receive from the buyer not payable on demand is not considered a payment. Filing federal and state taxes for free This is true even if the debt is guaranteed by a third party, including a government agency. Filing federal and state taxes for free Fair market value (FMV). Filing federal and state taxes for free   This is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having a reasonable knowledge of all the necessary facts. Filing federal and state taxes for free Third-party note. Filing federal and state taxes for free   If the property the buyer gives you is a third-party note (or other obligation of a third party), you are considered to have received a payment equal to the note's FMV. Filing federal and state taxes for free Because the FMV of the note is itself a payment on your installment sale, any payments you later receive from the third party are not considered payments on the sale. Filing federal and state taxes for free The excess of the note's face value over its FMV is interest. Filing federal and state taxes for free Exclude this interest in determining the selling price of the property. Filing federal and state taxes for free However, see Exception under Property Used As a Payment, earlier. Filing federal and state taxes for free Example. Filing federal and state taxes for free You sold real estate in an installment sale. Filing federal and state taxes for free As part of the down payment, the buyer assigned to you a $50,000, 8% interest third-party note. Filing federal and state taxes for free The FMV of the third-party note at the time of the sale was $30,000. Filing federal and state taxes for free This amount, not $50,000, is a payment to you in the year of sale. Filing federal and state taxes for free The third-party note had an FMV equal to 60% of its face value ($30,000 ÷ $50,000), so 60% of each principal payment you receive on this note is a nontaxable return of capital. Filing federal and state taxes for free The remaining 40% is interest taxed as ordinary income. Filing federal and state taxes for free Bond. Filing federal and state taxes for free   A bond or other evidence of debt you receive from the buyer that is payable on demand or readily tradable in an established securities market is treated as a payment in the year you receive it. Filing federal and state taxes for free For more information on the amount you should treat as a payment, see Exception under Property Used As a Payment, earlier. Filing federal and state taxes for free    If you receive a government or corporate bond for a sale before October 22, 2004, and the bond has interest coupons attached or can be readily traded in an established securities market, you are considered to have received payment equal to the bond's FMV. Filing federal and state taxes for free However, see Exception under Property Used As a Payment, earlier. Filing federal and state taxes for free Buyer's note. Filing federal and state taxes for free   The buyer's note (unless payable on demand) is not considered payment on the sale. Filing federal and state taxes for free However, its full face value is included when figuring the selling price and the contract price. Filing federal and state taxes for free Payments you receive on the note are used to figure your gain in the year received. Filing federal and state taxes for free 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. Filing federal and state taxes for free This is known as the pledge rule, and it applies if the selling price of the property is over $150,000. Filing federal and state taxes for free It does not apply to the following dispositions. Filing federal and state taxes for free Sales of property used or produced in farming. Filing federal and state taxes for free Sales of personal-use property. Filing federal and state taxes for free Qualifying sales of time-shares and residential lots. Filing federal and state taxes for free The net debt proceeds are the gross debt minus the direct expenses of getting the debt. Filing federal and state taxes for free The amount treated as a payment is considered received on the later of the following dates. Filing federal and state taxes for free The date the debt becomes secured. Filing federal and state taxes for free The date you receive the debt proceeds. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free Limit. Filing federal and state taxes for free   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. Filing federal and state taxes for free The total contract price on the installment sale. Filing federal and state taxes for free Any payments received on the installment obligation before the date the net debt proceeds are treated as a payment. Filing federal and state taxes for free Installment payments. Filing federal and state taxes for free   The pledge rule accelerates the reporting of the installment obligation payments. Filing federal and state taxes for free 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. Filing federal and state taxes for free Exception. Filing federal and state taxes for free   The pledge rule does not apply to pledges made after December 17, 1987, to refinance a debt under the following circumstances. Filing federal and state taxes for free The debt was outstanding on December 17, 1987. Filing federal and state taxes for free The debt was secured by that installment sale obligation on that date and at all times thereafter until the refinancing occurred. Filing federal and state taxes for free   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. Filing federal and state taxes for free   This exception applies only to refinancing that does not exceed the principal of the original debt immediately before the refinancing. Filing federal and state taxes for free Any excess is treated as a payment on the installment obligation. Filing federal and state taxes for free 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. Filing federal and state taxes for free These sales cannot be reported on the installment method. Filing federal and state taxes for free The buyer's obligation is paid in full when the balance of the purchase price is deposited into the escrow account. Filing federal and state taxes for free When an escrow account is established, you no longer rely on the buyer for the rest of the payments, but on the escrow arrangement. Filing federal and state taxes for free Example. Filing federal and state taxes for free You sell property for $100,000. Filing federal and state taxes for free 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. Filing federal and state taxes for free You cannot report the sale on the installment method because the full purchase price is considered received in the year of sale. Filing federal and state taxes for free You report the entire gain in the year of sale. Filing federal and state taxes for free Escrow established in a later year. Filing federal and state taxes for free   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. Filing federal and state taxes for free Substantial restriction. Filing federal and state taxes for free   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. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. Filing federal and state taxes for free Report the recapture income in Part II of Form 4797 as ordinary income in the year of sale. Filing federal and state taxes for free The recapture income is also included in Part I of Form 6252. Filing federal and state taxes for free However, the gain equal to the recapture income is reported in full in the year of the sale. Filing federal and state taxes for free Only the gain greater than the recapture income is reported on the installment method. Filing federal and state taxes for free For more information on depreciation recapture, see chapter 3 in Publication 544. Filing federal and state taxes for free 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. Filing federal and state taxes for free Determining gross profit is discussed under General Rules , earlier. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free These rules are explained under Sale of Depreciable Property and under Sale and Later Disposition , later. Filing federal and state taxes for free Sale of Depreciable Property If you sell depreciable property to certain related persons, you generally cannot report the sale using the installment method. Filing federal and state taxes for free Instead, all payments to be received are considered received in the year of sale. Filing federal and state taxes for free However, see Exception , below. Filing federal and state taxes for free Depreciable property for this rule is any property the purchaser can depreciate. Filing federal and state taxes for free Payments to be received include the total of all noncontingent payments and the FMV of any payments contingent as to amount. Filing federal and state taxes for free In the case of contingent payments for which the FMV cannot be reasonably determined, your basis in the property is recovered proportionately. Filing federal and state taxes for free The purchaser cannot increase the basis of the property acquired in the sale before the seller includes a like amount in income. Filing federal and state taxes for free Exception. Filing federal and state taxes for free   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. Filing federal and state taxes for free 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. Filing federal and state taxes for free Related person. Filing federal and state taxes for free   Related persons include the following. Filing federal and state taxes for free A person and all controlled entities with respect to that person. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free Two or more partnerships in which the same person owns, directly or indirectly, more than 50% of the capital interests or the profits interests. Filing federal and state taxes for free   For information about which entities are controlled entities, see section 1239(c). Filing federal and state taxes for free 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. Filing federal and state taxes for free The related person makes the second disposition before making all payments on the first disposition. Filing federal and state taxes for free The related person disposes of the property within 2 years of the first disposition. Filing federal and state taxes for free This rule does not apply if the property involved is marketable securities. Filing federal and state taxes for free 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. Filing federal and state taxes for free See Exception , later. Filing federal and state taxes for free Related person. Filing federal and state taxes for free   Related persons include the following. Filing federal and state taxes for free Members of a family, including only brothers and sisters (either whole or half), husband and wife, ancestors, and lineal descendants. Filing federal and state taxes for free A partnership or estate and a partner or beneficiary. Filing federal and state taxes for free A trust (other than a section 401(a) employees trust) and a beneficiary. Filing federal and state taxes for free A trust and an owner of the trust. Filing federal and state taxes for free Two corporations that are members of the same controlled group as defined in section 267(f). Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Filing federal and state taxes for free Any two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free An executor and a beneficiary of an estate unless the sale is in satisfaction of a pecuniary bequest. Filing federal and state taxes for free Example 1. Filing federal and state taxes for free 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. Filing federal and state taxes for free His installment sale basis for the farm land was $250,000 and the property was not subject to any outstanding liens or mortgages. Filing federal and state taxes for free His gross profit percentage is 50% (gross profit of $250,000 ÷ contract price of $500,000). Filing federal and state taxes for free He received $100,000 in 2012 and included $50,000 in income for that year ($100,000 × 0. Filing federal and state taxes for free 50). Filing federal and state taxes for free Bob made no improvements to the property and sold it to Alfalfa Inc. Filing federal and state taxes for free , in 2013 for $600,000 after making the payment for that year. Filing federal and state taxes for free The amount realized from the second disposition is $600,000. Filing federal and state taxes for free 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 % × . Filing federal and state taxes for free 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). Filing federal and state taxes for free Example 2. Filing federal and state taxes for free Assume the facts are the same as Example 1 except that Bob sells the property for only $400,000. Filing federal and state taxes for free 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 % × . Filing federal and state taxes for free 50 Installment sale income for 2013 $150,000     Harvey receives a $100,000 payment in 2014 and another in 2015. Filing federal and state taxes for free 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. Filing federal and state taxes for free In 2016, he receives the final $100,000 payment. Filing federal and state taxes for free 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 % × . Filing federal and state taxes for free 50 Installment sale income for 2016 $ 50,000 Exception. Filing federal and state taxes for free   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. Filing federal and state taxes for free 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. Filing federal and state taxes for free   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. Filing federal and state taxes for free However, the exception does not apply if the resale terms permit significant deferral of recognition of gain from the first sale. Filing federal and state taxes for free   In addition, any sale or exchange of stock to the issuing corporation is not treated as a first disposition. Filing federal and state taxes for free An involuntary conversion is not treated as a second disposition if the first disposition occurred before the threat of conversion. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free These trades are known as like-kind exchanges. Filing federal and state taxes for free The property you receive in a like-kind exchange is treated as if it were a continuation of the property you gave up. Filing federal and state taxes for free You do not have to report any part of your gain if you receive only like-kind property. Filing federal and state taxes for free 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. Filing federal and state taxes for free For more information on like-kind exchanges, see Like-Kind Exchanges in chapter 1 of Publication 544. Filing federal and state taxes for free Installment payments. Filing federal and state taxes for free   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. Filing federal and state taxes for free The contract price is reduced by the FMV of the like-kind property received in the trade. Filing federal and state taxes for free The gross profit is reduced by any gain on the trade that can be postponed. Filing federal and state taxes for free Like-kind property received in the trade is not considered payment on the installment obligation. Filing federal and state taxes for free Example. Filing federal and state taxes for free 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. Filing federal and state taxes for free He also receives an installment note for $800,000 in the trade. Filing federal and state taxes for free 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. Filing federal and state taxes for free George's selling price is $1,000,000 ($800,000 installment note + $200,000 FMV of like-kind property received). Filing federal and state taxes for free His gross profit is $600,000 ($1,000,000 − $400,000 installment sale basis). Filing federal and state taxes for free The contract price is $800,000 ($1,000,000 − $200,000). Filing federal and state taxes for free The gross profit percentage is 75% ($600,000 ÷ $800,000). Filing federal and state taxes for free He reports no gain in 2013 because the like-kind property he receives is not treated as a payment for figuring gain. Filing federal and state taxes for free 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). Filing federal and state taxes for free Deferred exchanges. Filing federal and state taxes for free   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. Filing federal and state taxes for free Under this type of exchange, the person receiving your property may be required to place funds in an escrow account or trust. Filing federal and state taxes for free 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. Filing federal and state taxes for free See Regulations section 1. Filing federal and state taxes for free 1031(k)-1(j)(2) for these rules. Filing federal and state taxes for free 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. Filing federal and state taxes for free This happens, for example, if you sell your business and the selling price includes a percentage of its profits in future years. Filing federal and state taxes for free 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. Filing federal and state taxes for free For rules on using the installment method for a contingent payment sale, see Regulations section 15a. Filing federal and state taxes for free 453-1(c). Filing federal and state taxes for free 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. Filing federal and state taxes for free You also have to allocate part of the selling price to each asset. Filing federal and state taxes for free If you sell assets that constitute a trade or business, see Sale of a Business , later. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free This becomes the net FMV. Filing federal and state taxes for free A sale of separate and unrelated assets of the same type under a single contract is reported as one transaction for the installment method. Filing federal and state taxes for free However, if an asset is sold at a loss, its disposition cannot be reported on the installment method. Filing federal and state taxes for free It must be reported separately. Filing federal and state taxes for free The remaining assets sold at a gain are reported together. Filing federal and state taxes for free Example. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free Your installment sale basis for each parcel was $15,000. Filing federal and state taxes for free Your net gain was $85,000 ($130,000 − $45,000). Filing federal and state taxes for free You report the gain on the installment method. Filing federal and state taxes for free The sales contract did not allocate the selling price or the cash payment received in the year of sale among the individual parcels. Filing federal and state taxes for free The FMV of parcels A, B, and C were $60,000, $60,000, and $10,000, respectively. Filing federal and state taxes for free The installment sale basis for parcel C was more than its FMV, so it was sold at a loss and must be treated separately. Filing federal and state taxes for free You must allocate the total selling price and the amounts received in the year of sale between parcel C and the remaining parcels. Filing federal and state taxes for free Of the total $130,000 selling price, you must allocate $120,000 to parcels A and B together and $10,000 to parcel C. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free You report this loss of $5,000 ($10,000 selling price − $15,000 installment sale basis) in the year of sale. Filing federal and state taxes for free However, if parcel C was held for personal use, the loss is not deductible. Filing federal and state taxes for free 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). Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free Assets sold at a loss. Filing federal and state taxes for free Real and personal property eligible for the installment method. Filing federal and state taxes for free Real and personal property ineligible for the installment method, including: Inventory, Dealer property, and Stocks and securities. Filing federal and state taxes for free Inventory. Filing federal and state taxes for free   The sale of inventories of personal property cannot be reported on the installment method. Filing federal and state taxes for free All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. Filing federal and state taxes for free   If inventory items are included in an installment sale, you may have an agreement stating which payments are for inventory and which are for the other assets being sold. Filing federal and state taxes for free If you do not, each payment must be allocated between the inventory and the other assets sold. Filing federal and state taxes for free   Report the amount you receive (or will receive) on the sale of inventory items as ordinary business income. Filing federal and state taxes for free Use your basis in the inventory to figure the cost of goods sold. Filing federal and state taxes for free Deduct the part of the selling expenses allocated to inventory as an ordinary business expense. Filing federal and state taxes for free Residual method. Filing federal and state taxes for free   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. Filing federal and state taxes for free This method determines gain or loss from the transfer of each asset and the buyer's basis in the assets. Filing federal and state taxes for free   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. Filing federal and state taxes for free 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). Filing federal and state taxes for free   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. Filing federal and state taxes for free   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). Filing federal and state taxes for free The consideration remaining after this reduction must be allocated among the various business assets in a certain order. Filing federal and state taxes for free   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. Filing federal and state taxes for free Certificates of deposit, U. Filing federal and state taxes for free S. Filing federal and state taxes for free Government securities, foreign currency, and actively traded personal property, including stock and securities. Filing federal and state taxes for free Accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. Filing federal and state taxes for free However, see Regulations section 1. Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free All other assets except section 197 intangibles. Filing federal and state taxes for free Section 197 intangibles except goodwill and going concern value. Filing federal and state taxes for free Goodwill and going concern value (whether or not they qualify as section 197 intangibles). Filing federal and state taxes for free   If an asset described in (1) through (6) is includible in more than one category, include it in the lower number category. Filing federal and state taxes for free For example, if an asset is described in both (4) and (6), include it in (4). Filing federal and state taxes for free Agreement. Filing federal and state taxes for free   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. Filing federal and state taxes for free This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Filing federal and state taxes for free Reporting requirement. Filing federal and state taxes for free   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. Filing federal and state taxes for free Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. Filing federal and state taxes for free The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Filing federal and state taxes for free 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. Filing federal and state taxes for free The sale of a partnership interest is treated as the sale of a single capital asset. Filing federal and state taxes for free The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary income. Filing federal and state taxes for free (The term “unrealized receivables” includes depreciation recapture income, discussed earlier. Filing federal and state taxes for free ) The gain allocated to the unrealized receivables and the inventory cannot be reported under the installment method. Filing federal and state taxes for free The gain allocated to the other assets can be reported under the installment method. Filing federal and state taxes for free For more information on the treatment of unrealized receivables and inventory, see Publication 541. Filing federal and state taxes for free Example — Sale of a Business On June 4, 2013, you sold the machine shop you had operated since 2005. Filing federal and state taxes for free You received a $100,000 down payment and the buyer's note for $120,000. Filing federal and state taxes for free The note payments are $15,000 each, plus 10% interest, due every July 1 and January 1, beginning in 2014. Filing federal and state taxes for free The total selling price is $220,000. Filing federal and state taxes for free Your selling expenses are $11,000. Filing federal and state taxes for free The selling expenses are divided among all the assets sold, including inventory. Filing federal and state taxes for free Your selling expense for each asset is 5% of the asset's selling price ($11,000 selling expense ÷ $220,000 total selling price). Filing federal and state taxes for free The FMV, adjusted basis, and depreciation claimed on each asset sold are as follows:     Depre- ciation Adj. Filing federal and state taxes for free 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). Filing federal and state taxes for free The remaining $18,500 ($220,000 - $201,500) is allocated to your section 197 intangible, goodwill. Filing federal and state taxes for free 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. Filing federal and state taxes for free   Sale  Price Sale   Exp. Filing federal and state taxes for free Adj. Filing federal and state taxes for free   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. Filing federal and state taxes for free A 71,000 3,550 63,800 3,650 Mch. Filing federal and state taxes for free 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. Filing federal and state taxes for free There is no depreciation recapture income because the building was depreciated using the straight line method. Filing federal and state taxes for free 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. Filing federal and state taxes for free Figure depreciation recapture in Part III of Form 4797. Filing federal and state taxes for free The total depreciation recapture income reported in Part II of Form 4797 is $5,209. Filing federal and state taxes for free 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). Filing federal and state taxes for free These gains are reported in full in the year of sale and are not included in the installment sale computation. Filing federal and state taxes for free Of the $220,000 total selling price, the $10,000 for inventory assets cannot be reported using the installment method. Filing federal and state taxes for free 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. Filing federal and state taxes for free The selling price equals the contract price for the installment sale ($108,500). Filing federal and state taxes for free The assets included in the installment sale, their selling price, and their installment sale bases are shown in the following chart. Filing federal and state taxes for free   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). Filing federal and state taxes for free The gross profit percentage for each asset is figured as follows: Percentage Land— $24,900 ÷ $108,500 22. Filing federal and state taxes for free 95 Building— $9,600 ÷ $108,500 8. Filing federal and state taxes for free 85 Goodwill— $17,575 ÷ $108,500 16. Filing federal and state taxes for free 20 Total 48. Filing federal and state taxes for free 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. Filing federal and state taxes for free The selling price for the installment sale is $108,500. Filing federal and state taxes for free This is 49. Filing federal and state taxes for free 3% of the total selling price of $220,000 ($108,500 ÷ $220,000). Filing federal and state taxes for free The selling price of assets not reported on the installment method is $111,500. Filing federal and state taxes for free This is 50. Filing federal and state taxes for free 7% ($111,500 ÷ $220,000) of the total selling price. Filing federal and state taxes for free Multiply principal payments by 49. Filing federal and state taxes for free 3% to determine the part of the payment for the installment sale. Filing federal and state taxes for free The balance, 50. Filing federal and state taxes for free 7%, is for the part reported in the year of the sale. Filing federal and state taxes for free The gain on the sale of the inventory, machines, and truck is reported in full in the year of sale. Filing federal and state taxes for free When you receive principal payments in later years, no part of the payment for the sale of these assets is included in gross income. Filing federal and state taxes for free Only the part for the installment sale (49. Filing federal and state taxes for free 3%) is used in the installment sale computation. Filing federal and state taxes for free The only payment received in 2013 is the down payment of $100,000. Filing federal and state taxes for free The part of the payment for the installment sale is $49,300 ($100,000 × 49. Filing federal and state taxes for free 3%). Filing federal and state taxes for free This amount is used in the installment sale computation. Filing federal and state taxes for free Installment income for 2013. Filing federal and state taxes for free   Your installment income for each asset is the gross profit percentage for that asset times $49,300, the installment income received in 2013. Filing federal and state taxes for free Income Land—22. Filing federal and state taxes for free 95% of $49,300 $11,314 Building—8. Filing federal and state taxes for free 85% of $49,300 4,363 Goodwill—16. Filing federal and state taxes for free 2% of $49,300 7,987 Total installment income for 2013 $23,664 Installment income after 2013. Filing federal and state taxes for free   You figure installment income for years after 2013 by applying the same gross profit percentages to 49. Filing federal and state taxes for free 3% of the total payments you receive on the buyer's note during the year. Filing federal and state taxes for free 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. Filing federal and state taxes for free Interest provided in the contract is called stated interest. Filing federal and state taxes for free If an installment sale contract does not provide for adequate stated interest, part of the stated principal amount of the contract may be recharacterized as interest. Filing federal and state taxes for free If section 483 applies to the contract, this interest is called unstated interest. Filing federal and state taxes for free If section 1274 applies to the contract, this interest is called original issue discount (OID). Filing federal and state taxes for free An installment sale contract does not provide for adequate stated interest if the stated interest rate is lower than the test rate (defined later). Filing federal and state taxes for free Treatment of unstated interest and OID. Filing federal and state taxes for free   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. Filing federal and state taxes for free As a result, the buyer cannot deduct the unstated interest. Filing federal and state taxes for free The seller must report the unstated interest as income. Filing federal and state taxes for free   Personal-use property is any property in which substantially all of its use by the buyer is not in connection with a trade or business or an investment activity. Filing federal and state taxes for free   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. Filing federal and state taxes for free Rules for the seller. Filing federal and state taxes for free   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. Filing federal and state taxes for free If either section applies, you must reduce the stated selling price of the property and increase your interest income by this unstated interest. Filing federal and state taxes for free   Include the unstated interest in income based on your regular method of accounting. Filing federal and state taxes for free Include OID in income over the term of the contract. Filing federal and state taxes for free   The OID includible in income each year is based on the constant yield method described in section 1272. Filing federal and state taxes for free (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. Filing federal and state taxes for free )   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. Filing federal and state taxes for free Reduce the selling price by any stated principal treated as interest to determine the gain. Filing federal and state taxes for free   Report unstated interest or OID on your tax return, in addition to stated interest. Filing federal and state taxes for free Rules for the buyer. Filing federal and state taxes for free   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. Filing federal and state taxes for free These rules do not apply to personal-use property (for example, property not used in a trade or business). Filing federal and state taxes for free Adequate stated interest. Filing federal and state taxes for free   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. Filing federal and state taxes for free The present value of a payment is determined based on the test rate of interest, defined next. Filing federal and state taxes for free (If section 483 applies to the contract, payments due within six months after the sale are taken into account at face value. Filing federal and state taxes for free ) In general, an installment sale contract provides for adequate stated interest if the stated interest rate (based on an appropriate compounding period) is at least equal to the test rate of interest. Filing federal and state taxes for free Test rate of interest. Filing federal and state taxes for free   The test rate of interest for a contract is the 3-month rate. Filing federal and state taxes for free The 3-month rate is the lower of the following applicable federal rates (AFRs). Filing federal and state taxes for free 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. Filing federal and state taxes for free 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. Filing federal and state taxes for free Applicable federal rate (AFR). Filing federal and state taxes for free   The AFR depends on the month the binding