Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

State Tax Online Filing

H&r Block Online TaxesFile Free State And Federal TaxesFederal Ez FormFree File 1040ezFree File1040ez2013How To Amend Taxes OnlineFree State Tax Return FilingFile Taxes 2012 FreeTax Filing Sites Federal California State Tax ReturnsEz Form 2014Free Taxes OnlineFile Extension1040 Ez1040ez Tax InstructionsSoftware To File 1040nrFile 2012 Taxes Online FreeState Income Taxes More:label_state_20income_20taxes More:financialsoft2010 Tax Forms 1040 Ez2009 1040xHow Do You Do State TaxesBack Tax ReliefTax Act Online Free1042nr EzFiling Taxes Late1040ez 2012 Tax FormFederal Tax Form 941 2012Taxes For MilitaryBack Taxes HelpMyfreetaxesTaxcut OnlineTax Return FormsFree H&r BlockWww Irs Gov 2011freeefile2012 Amended Return1040 Estimated Tax FormAmend Tax FormTax 20122011 Federal Tax Form 1040ezTaxslayer For Military

State Tax Online Filing

State tax online filing 13. State tax online filing   Payment of Taxes Table of Contents How To Make Deposits When To Make Deposits Amount of DepositsSafe Harbor Rule Generally, semimonthly deposits of excise taxes are required. State tax online filing A semimonthly period is the first 15 days of a month (the first semimonthly period) or the 16th through the last day of a month (the second semimonthly period). State tax online filing However, no deposit is required for the situations listed below; the taxes are payable with Form 720. State tax online filing The net liability for taxes listed in Part I (Form 720) does not exceed $2,500 for the quarter. State tax online filing The gas guzzler tax is being paid on a one-time filing. State tax online filing The liability is for taxes listed in Part II (Form 720), except for the floor stocks tax which generally requires a single deposit. State tax online filing How To Make Deposits Electronic deposit requirement. State tax online filing   You must use electronic funds transfer to make excise tax deposits. State tax online filing Generally, electronic funds transfers are made using the Electronic Federal Tax Payment System (EFTPS). State tax online filing If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make deposits on your behalf. State tax online filing Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. State tax online filing   EFTPS is a free service provided by the Department of Treasury. State tax online filing Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. State tax online filing To get more information about EFTPS or to enroll in EFTPS, visit www. State tax online filing eftps. State tax online filing gov or call 1-800-555-4477. State tax online filing Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. State tax online filing    Depositing on time. State tax online filing For EFTPS deposits to be on time, you must initiate the transaction at least 1 day before the date the deposit is due (before 8:00 p. State tax online filing m. State tax online filing Eastern time). State tax online filing You will automatically be enrolled in EFTPS when you apply for an EIN. State tax online filing You will receive a separate mailing containing instructions for activating your EFTPS enrollment after you receive your EIN. State tax online filing When To Make Deposits There are two methods for determining deposits: the regular method and the alternative method. State tax online filing The regular method applies to all taxes in Part I of Form 720 except for communications and air transportation taxes if deposits are based on amounts billed or tickets sold, rather than on amounts actually collected. State tax online filing See Alternative method below. State tax online filing If you are depositing more than one tax under a method, combine all the taxes under the method and make one deposit for the semimonthly period. State tax online filing Regular method. State tax online filing   The deposit of tax for a semimonthly period is due by the 14th day following that period. State tax online filing Generally, this is the 29th day of a month for the first semimonthly period and the 14th day of the following month for the second semimonthly period. State tax online filing If the 14th or the 29th day falls on a Saturday, Sunday, or legal holiday, you must make the deposit by the immediately preceding day that is not a Saturday, Sunday, or legal holiday. State tax online filing Alternative method (IRS Nos. State tax online filing 22, 26, 27, and 28). State tax online filing   Deposits of communications and air transportation taxes may be based on taxes included in amounts billed or tickets sold during a semimonthly period instead of on taxes actually collected during the period. State tax online filing Under the alternative method, the tax included in amounts billed or tickets sold during a semimonthly period is considered collected during the first 7 days of the second following semimonthly period. State tax online filing The deposit of tax is due by the 3rd banking day after the 7th day of that period. State tax online filing   For an example of the alternative method, see the Instructions for Form 720. State tax online filing To use the alternative method, you must keep a separate account of the tax included in amounts billed or tickets sold during the month and report on Form 720 the tax included in amounts billed or tickets sold and not the amount of tax that is actually collected. State tax online filing For example, amounts billed in December, January, and February are considered collected during January, February, and March and are reported on Form 720 as the tax for the 1st quarter of the calendar year. State tax online filing The separate account for each month must reflect: All items of tax included in amounts billed or tickets sold during the month, and Other items of adjustment relating to tax for prior months (within the statute of limitations on credits or refunds). State tax online filing The separate account for any month cannot include an adjustment resulting from a refusal to pay or inability to collect unless the refusal has been reported to the IRS. State tax online filing See Uncollected Tax Report in chapter 4. State tax online filing The net amount of tax that is considered collected during the semimonthly period must be either: The net amount of tax reflected in the separate account for the corresponding semimonthly period of the preceding month, or One-half of the net amount of tax reflected in the separate account for the preceding month. State tax online filing Special rule for deposits of taxes in September. State tax online filing   See the Instructions for Form 720 for a special rule on deposits made in September. State tax online filing Amount of Deposits Deposits for a semimonthly period generally must be at least 95% of the net tax liability for that period unless the safe harbor rule (discussed later) applies. State tax online filing Generally, you do not have to make a deposit for a period in which you incurred no tax liability. State tax online filing Net tax liability. State tax online filing   Your net tax liability is your tax liability for the period minus any claims on Schedule C (Form 720) for the period. State tax online filing You may figure your net tax liability for a semimonthly period by dividing your net liability incurred during the calendar month by two. State tax online filing If you use this method, you must use it for all semimonthly periods in the calendar quarter. State tax online filing Do not reduce your liability by any amounts from Form 720X. State tax online filing Safe Harbor Rule The safe harbor rule applies separately to deposits under the regular method and the alternative method. State tax online filing Persons who filed Form 720 for the look-back quarter (the 2nd calendar quarter preceding the current quarter) are considered to meet the semimonthly deposit requirement if the deposit for each semimonthly period in the current quarter is at least 1/6 (16. State tax online filing 67%) of the net tax liability reported for the look-back quarter. State tax online filing For the semimonthly period for which the additional deposit is required, the additional deposit must be at least 11/90 12. State tax online filing 23%), 10/90 (11. State tax online filing 12%) for non-EFTPS, of the net tax liability reported for the look-back quarter. State tax online filing Also, the total deposit for that semimonthly period must be at least 1/6 (16. State tax online filing 67%) of the net tax liability reported for the look-back quarter. State tax online filing Exceptions. State tax online filing   The safe harbor rule does not apply to: The 1st and 2nd quarters beginning on or after the effective date of an increase in the rate of tax unless the deposit of taxes for each semimonthly period in the calendar quarter is at least 1/6 (16. State tax online filing 67%) of the tax liability you would have had for the look-back quarter if the increased rate of tax had been in effect for that look-back quarter, Any quarter if liability includes any tax not in effect throughout the look-back quarter, or For deposits under the alternative method, any quarter if liability includes any tax not in effect throughout the look-back quarter and the month preceding the look-back quarter. State tax online filing Requirements to be met. State tax online filing   For the safe harbor rule to apply, you must: Make each deposit timely at an authorized financial institution, and Pay any underpayment for the current quarter by the due date of the return. State tax online filing    The IRS may withdraw the right to make deposits of tax using the safe harbor rule from any person not complying with these rules. State tax online filing Tax rate increases. State tax online filing   You must modify the safe harbor rule if there has been an increase in the rate of tax. State tax online filing You must figure your tax liability in the look-back quarter as if the increased rate had been in effect. State tax online filing To qualify for the safe harbor rule, your deposits cannot be less than 1/6 of the refigured tax liability. State tax online filing Prev  Up  Next   Home   More Online Publications
Español

Government Auctions and Sales by Agency

Find a particular U.S. government agency's auction or sale.


A

B

C

D

F

G

H

I

J

L

N

P

R

S

T

U

V

W

The State Tax Online Filing

State tax online filing 10. State tax online filing   Installment Sales Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Installment Sale of a Farm Installment MethodWhen to elect out. State tax online filing Revoking the election. State tax online filing More information. State tax online filing Figuring Installment Sale Income Payments Received or Considered Received ExampleSection 1231 gains. State tax online filing Summary. State tax online filing Introduction An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. State tax online filing If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. State tax online filing This method of reporting gain is called the installment method. State tax online filing You cannot use the installment method to report a loss. State tax online filing You can choose to report all of your gain in the year of sale. State tax online filing Installment obligation. State tax online filing   The buyer's obligation to make future payments to you can be in the form of a deed of trust, note, land contract, mortgage, or other evidence of the buyer's debt to you. State tax online filing Topics - This chapter discusses: The general rules that apply to using the installment method Installment sale of a farm Useful Items - You may want to see: Publication 523 Selling Your Home 535 Business Expenses 537 Installment Sales 538 Accounting Periods and Methods 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property 6252 Installment Sale Income See chapter 16 for information about getting publications and forms. State tax online filing Installment Sale of a Farm The installment sale of a farm for one overall price under a single contract is not the sale of a single asset. State tax online filing It generally includes the sale of real property and personal property reportable on the installment method. State tax online filing It may also include the sale of property for which you must maintain an inventory, which cannot be reported on the installment method. State tax online filing See Inventory , later. State tax online filing The selling price must be allocated to determine the amount received for each class of asset. State tax online filing The tax treatment of the gain or loss on the sale of each class of assets is determined by its classification as a capital asset, as property used in the business, or as property held for sale and by the length of time the asset was held. State tax online filing (See chapter 8 for a discussion of capital assets and chapter 9 for a discussion of property used in the business. State tax online filing ) Separate computations must be made to figure the gain or loss for each class of asset sold. State tax online filing See Sale of a Farm in chapter 8. State tax online filing If you report the sale of property on the installment method, any depreciation recapture under section 1245 or 1250 of the Internal Revenue Code is generally taxable as ordinary income in the year of sale. State tax online filing See Depreciation recapture , later. State tax online filing This applies even if no payments are received in that year. State tax online filing Installment Method An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. State tax online filing A farmer who is not required to maintain an inventory can use the installment method to report gain from the sale of property used or produced in farming. State tax online filing See Inventory , later, for information on the sale of farm property where inventory items are included in the assets sold. State tax online filing If a sale qualifies as an installment sale, the gain must be reported under the installment method unless you elect out of using the installment method. State tax online filing Electing out of the installment method. State tax online filing   If you elect not to use the installment method, you generally report the entire gain in the year of sale, even though you do not receive all the sale proceeds in that year. State tax online filing   To make this election, do not report your sale on Form 6252. State tax online filing Instead, report it on Schedule D (Form 1040), Form 4797, or both. State tax online filing When to elect out. State tax online filing   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. State tax online filing   However, if you timely file your tax return for the year the sale takes place without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). State tax online filing Write “Filed pursuant to section 301. State tax online filing 9100-2” at the top of the amended return and file it where the original return was filed. State tax online filing Revoking the election. State tax online filing   Once made, the election can be revoked only with IRS approval. State tax online filing A revocation is retroactive. State tax online filing More information. State tax online filing   See Electing Out of the Installment Method in Publication 537 for more information. State tax online filing Inventory. State tax online filing   The sale of farm inventory items cannot be reported on the installment method. State tax online filing All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. State tax online filing   If inventory items are included in an installment sale, you may have an agreement stating which payments are for inventory and which are for the other assets being sold. State tax online filing If you do not, each payment must be allocated between the inventory and the other assets sold. State tax online filing Sale at a loss. State tax online filing   If your sale results in a loss, you cannot use the installment method. State tax online filing If the loss is on an installment sale of business assets, you can deduct it only in the tax year of sale. State tax online filing Figuring Installment Sale Income Each payment on an installment sale usually consists of the following three parts. State tax online filing Interest income. State tax online filing Return of your adjusted basis in the property. State tax online filing Gain on the sale. State tax online filing In each year you receive a payment, you must include in income both the interest part and the part that is your gain on the sale. State tax online filing You do not include in income the part that is the return of your basis in the property. State tax online filing Basis is the amount of your investment in the property for installment sale purposes. State tax online filing Interest income. State tax online filing   You must report interest as ordinary income. State tax online filing Interest is generally not included in a down payment. State tax online filing However, you may have to treat part of each later payment as interest, even if it is not called interest in your agreement with the buyer. State tax online filing Interest provided in the agreement is called stated interest. State tax online filing If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. State tax online filing See Unstated interest , later. State tax online filing    You must continue to report the interest income on payments you receive in subsequent years as interest income. State tax online filing Adjusted basis and installment sale income (gain on sale). State tax online filing   After you have determined how much of each payment to treat as interest, you treat the rest of each payment as if it were made up of two parts. State tax online filing A tax-free return of your adjusted basis in the property, and Your gain (referred to as “installment sale income” on Form 6252). State tax online filing Figuring adjusted basis for installment sale purposes. State tax online filing   You can use Worksheet 10-1 to figure your adjusted basis in the property for installment sale purposes. State tax online filing When you have completed the worksheet, you will also have determined the gross profit percentage necessary to figure your installment sale income (gain) for this year. State tax online filing    Worksheet 10-1. State tax online filing Figuring Adjusted Basis and Gross Profit Percentage 1. State tax online filing Enter the selling price for the property   2. State tax online filing Enter your adjusted basis for the property     3. State tax online filing Enter your selling expenses     4. State tax online filing Enter any depreciation recapture     5. State tax online filing Add lines 2, 3, and 4. State tax online filing  This is your adjusted basis  for installment sale purposes   6. State tax online filing Subtract line 5 from line 1. State tax online filing If zero or less, enter -0-. State tax online filing  This is your gross profit     If the amount entered on line 6 is zero, Stop here. State tax online filing You cannot use the installment method. State tax online filing   7. State tax online filing Enter the contract price for the property   8. State tax online filing Divide line 6 by line 7. State tax online filing This is your gross profit percentage   Selling price. State tax online filing   The selling price is the total cost of the property to the buyer and includes the following. State tax online filing Any money you are to receive. State tax online filing The fair market value (FMV) of any property you are to receive (FMV is discussed at Property used as a payment under Payments Received or Considered Received ). State tax online filing Any existing mortgage or other debt the buyer pays, assumes, or takes (a note, mortgage, or any other liability, such as a lien, accrued interest, or taxes you owe on the property). State tax online filing Any of your selling expenses the buyer pays. State tax online filing Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. State tax online filing Adjusted basis for installment sale purposes. State tax online filing   Your adjusted basis is the total of the following three items. State tax online filing Adjusted basis. State tax online filing Selling expenses. State tax online filing Depreciation recapture. State tax online filing Adjusted basis. State tax online filing   Basis is your investment in the property for installment sale purposes. State tax online filing The way you figure basis depends on how you acquire the property. State tax online filing The basis of property you buy is generally its cost. State tax online filing The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. State tax online filing   While you own property, various events may change your original basis. State tax online filing Some events, such as adding rooms or making permanent improvements, increase basis. State tax online filing Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. State tax online filing The result is adjusted basis. State tax online filing See chapter 6 and Publication 551, Basis of Assets, for more information. State tax online filing Selling expenses. State tax online filing   Selling expenses relate to the sale of the property. State tax online filing They include commissions, attorney fees, and any other expenses paid on the sale. State tax online filing Selling expenses are added to the basis of the sold property. State tax online filing Depreciation recapture. State tax online filing   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. State tax online filing See Depreciation Recapture in chapter 9 and Depreciation Recapture Income in Publication 537. State tax online filing Gross profit. State tax online filing   Gross profit is the total gain you report on the installment method. State tax online filing   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. State tax online filing If the property you sold was your home, subtract from the gross profit any gain you can exclude. State tax online filing Contract price. State tax online filing   Contract price equals: The selling price, minus The mortgages, debts, and other liabilities assumed or taken by the buyer, plus The amount by which the mortgages, debts, and other liabilities assumed or taken by the buyer exceed your adjusted basis for installment sale purposes. State tax online filing Gross profit percentage. State tax online filing   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. State tax online filing This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. State tax online filing   The gross profit percentage generally remains the same for each payment you receive. State tax online filing However, see the example under Selling price reduced , later, for a situation where the gross profit percentage changes. State tax online filing Amount to report as installment sale income. State tax online filing   Multiply the payments you receive each year (less interest) by the gross profit percentage. State tax online filing The result is your installment sales income for the tax year. State tax online filing In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. State tax online filing A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. State tax online filing For a detailed discussion, see Payments Received or Considered Received , later. State tax online filing Selling price reduced. State tax online filing   If the selling price is reduced at a later date, the gross profit on the sale also will change. State tax online filing You then must refigure the gross profit percentage for the remaining payments. State tax online filing Refigure your gross profit using Worksheet 10-2. State tax online filing New Gross Profit Percentage — Selling Price Reduced. State tax online filing You will spread any remaining gain over future installments. State tax online filing    Worksheet 10-2. State tax online filing New Gross Profit Percentage — Selling Price Reduced 1. State tax online filing Enter the reduced selling  price for the property   2. State tax online filing Enter your adjusted  basis for the  property     3. State tax online filing Enter your selling  expenses     4. State tax online filing Enter any depreciation  recapture     5. State tax online filing Add lines 2, 3, and 4. State tax online filing   6. State tax online filing Subtract line 5 from line 1. State tax online filing  This is your adjusted  gross profit   7. State tax online filing Enter any installment sale  income reported in  prior year(s)   8. State tax online filing Subtract line 7 from line 6   9. State tax online filing Future installments     10. State tax online filing Divide line 8 by line 9. State tax online filing  This is your new  gross profit percentage*. State tax online filing   * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. State tax online filing Example. State tax online filing In 2011, you sold land with a basis of $40,000 for $100,000. State tax online filing Your gross profit was $60,000. State tax online filing You received a $20,000 down payment and the buyer's note for $80,000. State tax online filing The note provides for monthly payments of $1,953 each, figured at 8% interest, amortized over four years, beginning in January 2012. State tax online filing Your gross profit percentage was 60%. State tax online filing You received the down payment of $20,000 in 2011 and total payments of $23,436 in 2012, of which $17,675 was principal and $5,761 was interest according to the amortization schedule. State tax online filing You reported a gain of $12,000 on the down payment received in 2011 and $10,605 ($17,675 X 60% (. State tax online filing 60)) in 2012. State tax online filing In January 2013, you and the buyer agreed to reduce the purchase price to $85,000 and payments during 2013, 2014, and 2015 are reduced to $1,483 a month amortized over the remaining three years. State tax online filing The new gross profit percentage, 47. State tax online filing 32%, is figured in Example — Worksheet 10-2. State tax online filing Example — Worksheet 10-2. State tax online filing New Gross Profit Percentage — Selling Price Reduced 1. State tax online filing Enter the reduced selling  price for the property 85,000 2. State tax online filing Enter your adjusted  basis for the  property 40,000   3. State tax online filing Enter your selling  expenses -0-   4. State tax online filing Enter any depreciation  recapture -0-   5. State tax online filing Add lines 2, 3, and 4. State tax online filing 40,000 6. State tax online filing Subtract line 5 from line 1. State tax online filing  This is your adjusted  gross profit 45,000 7. State tax online filing Enter any installment sale  income reported in  prior year(s) 22,605 8. State tax online filing Subtract line 7 from line 6 22,395 9. State tax online filing Future installments   47,325 10. State tax online filing Divide line 8 by line 9. State tax online filing  This is your new  gross profit percentage*. State tax online filing 47. State tax online filing 32% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. State tax online filing You will report installment sale income of $6,878 (47. State tax online filing 32% of $14,535) in 2013, $7,449 (47. State tax online filing 32% of $15,742) in 2014, and $8,067 (47. State tax online filing 32% of $17,048) in 2015. State tax online filing Form 6252. State tax online filing   Use Form 6252 to report an installment sale in the year it takes place and to report payments received, or considered received because of related party resales, in later years. State tax online filing Attach it to your tax return for each year. State tax online filing Disposition of Installment Obligation If you are using the installment method and you dispose of the installment obligation, generally you will have a gain or loss to report. State tax online filing It is considered gain or loss on the sale of the property for which you received the installment obligation. State tax online filing Cancellation. State tax online filing   If an installment obligation is canceled or otherwise becomes unenforceable, it is treated as a disposition other than a sale or exchange. State tax online filing Your gain or loss is the difference between your basis in the obligation and its fair market value (FMV) at the time you cancel it. State tax online filing If the parties are related, the FMV of the obligation is considered to be no less than its full face value. State tax online filing Transfer due to death. State tax online filing   The transfer of an installment obligation (other than to a buyer) as a result of the death of the seller is not a disposition. State tax online filing Any unreported gain from the installment obligation is not treated as gross income to the decedent. State tax online filing No income is reported on the decedent's return due to the transfer. State tax online filing Whoever receives the installment obligation as a result of the seller's death is taxed on the installment payments the same as the seller would have been had the seller lived to receive the payments. State tax online filing   However, if the installment obligation is canceled, becomes unenforceable, or is transferred to the buyer because of the death of the holder of the obligation, it is a disposition. State tax online filing The estate must figure its gain or loss on the disposition. State tax online filing If the holder and the buyer were related, the FMV of the installment obligation is considered to be no less than its full face value. State tax online filing More information. State tax online filing   For more information on the disposition of an installment obligation, see Publication 537. State tax online filing Sale of depreciable property. State tax online filing   You generally cannot report gain from the sale of depreciable property to a related person on the installment method. State tax online filing See Sale to a Related Person in Publication 537. State tax online filing   You cannot use the installment method to report any depreciation recapture income up to the gain on the sale. State tax online filing However, report any gain greater than the recapture income on the installment method. State tax online filing   The recapture income reported in the year of sale is included in your installment sale basis to determine your gross profit on the installment sale. State tax online filing   Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. State tax online filing Report the depreciation recapture income in Part II of Form 4797 as ordinary income in the year of sale. State tax online filing    If you sell depreciable business property, prepare Form 4797 first in order to figure the amount to enter on line 12 of Part I, Form 6252. State tax online filing See the Form 6252 instructions for details. State tax online filing   For more information on the section 179 deduction, see Section 179 Expense Deduction in chapter 7. State tax online filing For more information on depreciation recapture, see Depreciation Recapture in  chapter 9. State tax online filing Payments Received or Considered Received You must figure your gain each year on the payments you receive, or are treated as receiving, from an installment sale. State tax online filing In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. State tax online filing These situations occur when the buyer assumes or pays any of your debts, such as a loan, or pays any of your expenses, such as a sales commission. State tax online filing However, as discussed later, the buyer's assumption of your debt is treated as a recovery of basis, rather than as a payment, in many cases. State tax online filing Buyer pays seller's expenses. State tax online filing   If the buyer pays any of your expenses related to the sale of your property, it is considered a payment to you in the year of sale. State tax online filing Include these expenses in the selling and contract prices when figuring the gross profit percentage. State tax online filing Buyer assumes mortgage. State tax online filing   If the buyer assumes or pays off your mortgage, or otherwise takes the property subject to the mortgage, the following rules apply. State tax online filing Mortgage less than basis. State tax online filing   If the buyer assumes a mortgage that is not more than your installment sale basis in the property, it is not considered a payment to you. State tax online filing It is considered a recovery of your basis. State tax online filing The contract price is the selling price minus the mortgage. State tax online filing Example. State tax online filing You sell property with an adjusted basis of $19,000. State tax online filing You have selling expenses of $1,000. State tax online filing The buyer assumes your existing mortgage of $15,000 and agrees to pay you $10,000 (a cash down payment of $2,000 and $2,000 (plus 8% interest) in each of the next 4 years). State tax online filing The selling price is $25,000 ($15,000 + $10,000). State tax online filing Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). State tax online filing The contract price is $10,000 ($25,000 − $15,000 mortgage). State tax online filing Your gross profit percentage is 50% ($5,000 ÷ $10,000). State tax online filing You report half of each $2,000 payment received as gain from the sale. State tax online filing You also report all interest you receive as ordinary income. State tax online filing Mortgage more than basis. State tax online filing   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. State tax online filing The part of the mortgage greater than your basis is treated as a payment received in the year of sale. State tax online filing   To figure the contract price, subtract the mortgage from the selling price. State tax online filing This is the total amount (other than interest) you will receive directly from the buyer. State tax online filing Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). State tax online filing The contract price is then the same as your gross profit from the sale. State tax online filing    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. State tax online filing Example. State tax online filing The selling price for your property is $9,000. State tax online filing The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. State tax online filing Your adjusted basis in the property is $4,400. State tax online filing You have selling expenses of $600, for a total installment sale basis of $5,000. State tax online filing The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). State tax online filing This amount is included in the contract price and treated as a payment received in the year of sale. State tax online filing The contract price is $4,000: Selling price $9,000 Minus: Mortgage (6,000) Amount actually received $3,000 Add difference:   Mortgage $6,000   Minus: Installment sale basis 5,000 1,000 Contract price $4,000   Your gross profit on the sale is also $4,000: Selling price $9,000 Minus: Installment sale basis (5,000) Gross profit $4,000   Your gross profit percentage is 100%. State tax online filing Report 100% of each payment (less interest) as gain from the sale. State tax online filing Treat the $1,000 difference between the mortgage and your installment sale basis as a payment and report 100% of it as gain in the year of sale. State tax online filing Buyer assumes other debts. State tax online filing   If the buyer assumes any other debts, such as a loan or back taxes, it may be considered a payment to you in the year of sale. State tax online filing   If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. State tax online filing Compare the debt to your installment sale basis in the property being sold. State tax online filing If the debt is less than your installment sale basis, none of it is treated as a payment. State tax online filing If it is more, only the difference is treated as a payment. State tax online filing If the buyer assumes more than one debt, any part of the total that is more than your installment sale basis is considered a payment. State tax online filing These rules are the same as the rules discussed earlier under Buyer assumes mortgage . State tax online filing However, they apply only to the following types of debt the buyer assumes. State tax online filing Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. State tax online filing Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. State tax online filing   If the buyer assumes any other type of debt, such as a personal loan or your legal fees relating to the sale, it is treated as if the buyer had paid off the debt at the time of the sale. State tax online filing The value of the assumed debt is then considered a payment to you in the year of sale. State tax online filing Property used as a payment. State tax online filing   If you receive property rather than money from the buyer, it is still considered a payment in the year received. State tax online filing However, see Trading property for like-kind property , later. State tax online filing Generally, the amount of the payment is the property's FMV on the date you receive it. State tax online filing Exception. State tax online filing   If the property the buyer gives you is payable on demand or readily tradable (see examples later), the amount you should consider as payment in the year received is: The FMV of the property on the date you receive it if you use the cash method of accounting, The face amount of the obligation on the date you receive it if you use an accrual method of accounting, or The stated redemption price at maturity less any original issue discount (OID) or, if there is no OID, the stated redemption price at maturity appropriately discounted to reflect total unstated interest. State tax online filing See Unstated interest , later. State tax online filing Examples. State tax online filing If you receive a note from the buyer as payment, and the note stipulates that you can demand payment from the buyer at any time, the note is payable on demand. State tax online filing If you receive marketable securities from the buyer as payment, and you can sell the securities on an established securities market (such as the New York Stock Exchange) at any time, the securities are readily tradable. State tax online filing In these examples, use the above rules to determine the amount you should consider as payment in the year received. State tax online filing Debt not payable on demand. State tax online filing   Any evidence of debt you receive from the buyer that is not payable on demand is not considered a payment. State tax online filing This is true even if the debt is guaranteed by a third party, including a government agency. State tax online filing Fair market value (FMV). State tax online filing   This is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having a reasonable knowledge of all the necessary facts. State tax online filing Third-party note. State tax online filing   If the property the buyer gives you is a third-party note (or other obligation of a third party), you are considered to have received a payment equal to the note's FMV. State tax online filing Because the FMV of the note is itself a payment on your installment sale, any payments you later receive from the third party are not considered payments on the sale. State tax online filing The excess of the note's face value over its FMV is interest. State tax online filing Exclude this interest in determining the selling price of the property. State tax online filing However, see Exception under Property used as a payment , earlier. State tax online filing Example. State tax online filing You sold real estate in an installment sale. State tax online filing As part of the down payment, the buyer assigned to you a $50,000, 8% third-party note. State tax online filing The FMV of the third-party note at the time of the sale was $30,000. State tax online filing This amount, not $50,000, is a payment to you in the year of sale. State tax online filing The third-party note had an FMV equal to 60% of its face value ($30,000 ÷ $50,000), so 60% of each principal payment you receive on this note is a nontaxable return of capital. State tax online filing The remaining 40% is interest taxed as ordinary income. State tax online filing Bond. State tax online filing   A bond or other evidence of debt you receive from the buyer that is payable on demand or readily tradable in an established securities market is treated as a payment in the year you receive it. State tax online filing For more information on the amount you should treat as a payment, see Exception under Property used as a payment , earlier. State tax online filing   If you receive a government or corporate bond for a sale before October 22, 2004, and the bond has interest coupons attached or can be readily traded in an established securities market, you are considered to have received payment equal to the bond's FMV. State tax online filing However, see Exception under Property used as a payment , earlier. State tax online filing Buyer's note. State tax online filing   The buyer's note (unless payable on demand) is not considered payment on the sale. State tax online filing However, its full face value is included when figuring the selling price and the contract price. State tax online filing Payments you receive on the note are used to figure your gain in the year received. State tax online filing Sale to a related person. State tax online filing   If you sell depreciable property to a related person and the sale is an installment sale, you may not be able to report the sale using the installment method. State tax online filing For information on these rules, see the Instructions for Form 6252 and Sale to a Related Person in Publication 537. State tax online filing Trading property for like-kind property. State tax online filing   If you trade business or investment property solely for the same kind of property to be held as business or investment property, you can postpone reporting the gain. State tax online filing See Like-Kind Exchanges in chapter 8 for a discussion of like-kind property. State tax online filing   If, in addition to like-kind property, you receive an installment obligation in the exchange, the following rules apply to determine installment sale income each year. State tax online filing The contract price is reduced by the FMV of the like-kind property received in the trade. State tax online filing The gross profit is reduced by any gain on the trade that can be postponed. State tax online filing Like-kind property received in the trade is not considered payment on the installment obligation. State tax online filing Unstated interest. State tax online filing   An installment sale contract may provide that each deferred payment on the sale will include interest or that there will be an interest payment in addition to the principal payment. State tax online filing Interest provided in the contract is called stated interest. State tax online filing   If an installment sale contract does not provide for adequate stated interest, part of the stated principal amount of the contract may be recharacterized as interest. State tax online filing If Internal Revenue Code section 483 applies to the contract, this interest is called unstated interest. State tax online filing   If Internal Revenue Code section 1274 applies to the contract, this interest is called original issue discount (OID). State tax online filing   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. State tax online filing Therefore, the buyer cannot deduct the unstated interest. State tax online filing The seller must report the unstated interest as income. State tax online filing Personal-use property is any property in which substantially all of its use by the buyer is not in connection with a trade or business or an investment activity. State tax online filing   If the debt is subject to the Internal Revenue Code section 483 rules and is also subject to the below-market loan rules, such as a gift loan, compensation-related loan or corporation-shareholder loan, then both parties are subject to the below-market loan rules rather than the unstated interest rules. State tax online filing   Unstated interest reduces the stated selling price of the property and the buyer's basis in the property. State tax online filing It increases the seller's interest income and the buyer's interest expense. State tax online filing   In general, an installment sale contract provides for adequate stated interest if the stated interest rate (based on an appropriate compounding period) is at least equal to the applicable federal rate (AFR). State tax online filing    The AFRs are published monthly in the Internal Revenue Bulletin (IRB). State tax online filing You can get this information by contacting an IRS office. State tax online filing IRBs are also available at IRS. State tax online filing gov. State tax online filing More information. State tax online filing   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. State tax online filing Example. State tax online filing You sell property at a contract price of $6,000 and your gross profit is $1,500. State tax online filing Your gross profit percentage is 25% ($1,500 ÷ $6,000). State tax online filing After subtracting interest, you report 25% of each payment, including the down payment, as installment sale income from the sale for the tax year you receive the payment. State tax online filing The remainder (balance) of each payment is the tax-free return of your adjusted basis. State tax online filing Example On January 3, 2013, you sold your farm, including the home, farm land and buildings. State tax online filing You received $50,000 down and the buyer's note for $200,000. State tax online filing In addition, the buyer assumed an outstanding $50,000 mortgage on the farm land. State tax online filing The total selling price was $300,000. State tax online filing The note payments of $25,000 each, plus adequate interest, are due every July 1 and January 1, beginning in July 2013. State tax online filing Your selling expenses were $15,000. State tax online filing Adjusted basis and depreciation. State tax online filing   The adjusted basis and depreciation claimed on each asset sold are as follows:   Depreciation Adjusted Asset Claimed Basis Home* -0- $33,743 Farm land -0- 73,610 Buildings $31,500 35,130 * Owned and used as main home for at least 2 of the 5 years prior to the sale Gain on each asset. State tax online filing   The following schedule shows the assets included in the sale, each asset's selling price based on its respective value, the selling expense allocated to each asset, the adjusted basis of each asset, and the gain on each asset. State tax online filing The selling expense for each asset is 5% of the selling price ($15,000 selling expense ÷ $300,000 selling price). State tax online filing   Selling Selling Adjusted     Price Expense Basis Gain Home* $60,000 $3,000 $33,743 $23,257 Farm land  165,000  8,250  73,610  83,140 Buildings 75,000 3,750 35,130 36,120   $300,000 $15,000 $142,483 $142,517 * Owned and used as main home for at least 2 of the 5 years prior to the sale Depreciation recapture. State tax online filing   The buildings are section 1250 property. State tax online filing There is no depreciation recapture income for them because they were depreciated using the straight line method. State tax online filing See chapter 9 for more information on depreciation recapture. State tax online filing   Special rules may apply when you sell section 1250 assets depreciated under the straight line method. State tax online filing See the Unrecaptured Section 1250 Gain Worksheet in the Instructions for Schedule D (Form 1040). State tax online filing See chapter 3 of Publication 544, Sales and Other Dispositions of Assets, for more information on section 1250 assets. State tax online filing Installment sale basis and gross profit. State tax online filing   The following table shows each asset reported on the installment method, its selling price, installment sale basis, and gross profit. State tax online filing     Installment     Selling Sale Gross   Price Basis Profit Farm land $165,000 $73,610 $83,140 Buildings 75,000 35,130 36,120   $240,000 $108,740 $119,260 Section 1231 gains. State tax online filing   The gain on the farm land and buildings is reported as section 1231 gains. State tax online filing See Section 1231 Gains and Losses in chapter 9. State tax online filing Contract price and gross profit percentage. State tax online filing   The contract price is $250,000 for the part of the sale reported on the installment method. State tax online filing This is the selling price ($300,000) minus the mortgage assumed ($50,000). State tax online filing   Gross profit percentage for the sale is 47. State tax online filing 70% ($119,260 gross profit ÷ $250,000 contract price). State tax online filing The gross profit percentage for each asset is figured as follows:   Percent Farm land ($83,140 ÷ $250,000) 33. State tax online filing 256 Buildings ($36,120 ÷ $250,000) 14. State tax online filing 448 Total 47. State tax online filing 70 Figuring the gain to report on the installment method. State tax online filing   One hundred percent (100%) of each payment is reported on the installment method. State tax online filing The total amount received on the sale in 2013 is $75,000 ($50,000 down payment + $25,000 payment on July 1). State tax online filing The installment sale part of the total payments received in 2013 is also $75,000. State tax online filing Figure the gain to report for each asset by multiplying its gross profit percentage times $75,000. State tax online filing   Income Farm land—33. State tax online filing 256% × $75,000 $24,942 Buildings—14. State tax online filing 448% × $75,000 10,836 Total installment income for 2013 $35,778 Reporting the sale. State tax online filing   Report the installment sale on Form 6252. State tax online filing Then report the amounts from Form 6252 on Form 4797 and Schedule D (Form 1040). State tax online filing Attach a separate page to Form 6252 that shows the computations in the example. State tax online filing If you sell depreciable business property, prepare Form 4797 first in order to figure the amount to enter on line 12 of Part I, Form 6252. State tax online filing Section 1231 gains. State tax online filing   The gains on the farm land and buildings are section 1231 gains. State tax online filing They may be reported as either capital or ordinary gain depending on the net balance when combined with other section 1231 losses. State tax online filing A net 1231 gain is capital gain and a net 1231 loss is an ordinary loss. State tax online filing Installment income for years after 2013. State tax online filing   You figure installment income for the years after 2013 by applying the same gross profit percentages to the payments you receive each year. State tax online filing If you receive $50,000 during the year, the entire $50,000 is considered received on the installment sale (100% × $50,000). State tax online filing You realize income as follows:   Income Farm land—33. State tax online filing 256% × $50,000 $16,628 Buildings—14. State tax online filing 448% × $50,000 7,224 Total installment income $23,852   In this example, no gain ever is recognized from the sale of your home. State tax online filing You will combine your section 1231 gains from this sale with section 1231 gains and losses from other sales in each of the later years to determine whether to report them as ordinary or capital gains. State tax online filing The interest received with each payment will be included in full as ordinary income. State tax online filing Summary. State tax online filing   The installment income (rounded to the nearest dollar) from the sale of the farm is reported as follows: Selling price $190,000 Minus: Installment basis (108,740) Gross profit $81,260     Gain reported in 2012 (year of sale) $35,778 Gain reported in 2013:   $50,000 × 47. State tax online filing 70% 23,850 Gain reported in 2014:   $50,000 × 47. State tax online filing 70% 23,850 Gain reported in 2015:   $50,000 × 47. State tax online filing 70% 23,850 Gain reported in 2016:   $25,000 × 47. State tax online filing 70% 11,925 Total gain reported $119,253 Prev  Up  Next   Home   More Online Publications