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Tax Form For Students

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Tax Form For Students

Tax form for students 35. Tax form for students   Education Credits Table of Contents Introduction Useful Items - You may want to see: Who Can Claim an Education Credit Qualified Education ExpensesNo Double Benefit Allowed Adjustments to Qualified Education Expenses Introduction For 2013, there are two tax credits available to persons who pay expenses for higher (postsecondary) education. Tax form for students They are: The American opportunity credit, and The lifetime learning credit. Tax form for students The chapter will present an overview of these education credits. Tax form for students To get the detailed information you will need to claim either of the credits, and for examples illustrating that information, see chapters 2 and 3 of Publication 970. Tax form for students Can you claim more than one education credit this year?   For each student, you can choose for any year only one of the credits. Tax form for students For example, if you choose to take the American opportunity credit for a child on your 2013 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2013. Tax form for students   If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both. Tax form for students   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity and the lifetime learning credits on a per-student, per-year basis. Tax form for students This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Tax form for students Table 35-1. Tax form for students Comparison of Education Credits Caution. Tax form for students You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same student. Tax form for students   American Opportunity Credit Lifetime Learning Credit Maximum credit Up to $2,500 credit per eligible student Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly;  $90,000 if single, head of household, or qualifying widow(er) $127,000 if married filing jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable Credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) the Hope credit was claimed) Available for an unlimited number of years Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period beginning during the tax year Available for one or more courses Felony drug conviction At the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Felony drug convictions do not make the student ineligible Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Differences between the American opportunity and lifetime learning credits. Tax form for students   There are several differences between these two credits. Tax form for students These differences are summarized in Table 35-1, later. Tax form for students Useful Items - You may want to see: Publication 970 Tax Benefits for Education Form (and Instructions) 8863 Education Credits (American Opportunity and Lifetime Learning Credits) Who Can Claim an Education Credit You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. Tax form for students The credits are based on the amount of qualified education expenses paid for the student in 2013 for academic periods beginning in 2013 and in the first 3 months of 2014. Tax form for students For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 education credit(s). Tax form for students Academic period. Tax form for students   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Tax form for students In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Tax form for students Eligible educational institution. Tax form for students   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Tax form for students S. Tax form for students Department of Education. Tax form for students It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Tax form for students The educational institution should be able to tell you if it is an eligible educational institution. Tax form for students   Certain educational institutions located outside the United States also participate in the U. Tax form for students S. Tax form for students Department of Education's Federal Student Aid (FSA) programs. Tax form for students Who can claim a dependent's expenses. Tax form for students   If an exemption is allowed as a deduction for any person who claims the student as a dependent, all qualified education expenses of the student are treated as having been paid by that person. Tax form for students Therefore, only that person can claim an education credit for the student. Tax form for students If a student is not claimed as a dependent on another person's tax return, only the student can claim a credit. Tax form for students Expenses paid by a third party. Tax form for students   Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. Tax form for students However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Tax form for students Therefore, you are treated as having paid expenses that were paid by the third party. Tax form for students For more information and an example see Who Can Claim a Dependent's Expenses in Pub. Tax form for students 970, chapter 2 or 3. Tax form for students Who cannot claim a credit. Tax form for students   You cannot take an education credit if any of the following apply. Tax form for students You are claimed as a dependent on another person's tax return, such as your parent's return. Tax form for students Your filing status is married filing separately. Tax form for students You (or your spouse) were a nonresident alien for any part of 2013 and did not elect to be treated as a resident alien for tax purposes. Tax form for students Your MAGI is one of the following. Tax form for students American opportunity credit: $180,000 or more if married filing jointly, or $90,000 or more if single, head of household, or qualifying widow(er). Tax form for students Lifetime learning credit: $127,000 or more if married filing jointly, or $63,000 or more if single, head of household, or qualifying widow(er) . Tax form for students   Generally, your MAGI is the amount on your Form 1040, line 38, or Form 1040A, line 22. Tax form for students However, if you are filing Form 2555, Form 2555–EZ, or Form 4563, or are excluding income from Puerto RIco, add to the amount on your Form 1040, line 38, or Form 1040A, line 22, the amount of income you excluded. Tax form for students For details, see Pub. Tax form for students 970. Tax form for students    Figure 35-A may be helpful in determining if you can claim an education credit on your tax return. Tax form for students The American opportunity credit will always be greater than or equal to the lifetime learning credit for any student who is eligible for both credits. Tax form for students However, if any of the conditions for the American opportunity credit, listed in Table 35-1 earlier, are not met for any student, you cannot take the American opportunity credit for that student. Tax form for students You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. Tax form for students See Pub. Tax form for students 970 for information on other education benefits. Tax form for students Qualified Education Expenses Generally, qualified education expenses are amounts paid in 2013 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. Tax form for students It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds. Tax form for students For course-related books, supplies, and equipment, only certain expenses qualify. Tax form for students American opportunity credit: Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. Tax form for students Lifetime learning credit: Qualified education expenses include amounts for books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance. Tax form for students Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance. Tax form for students However, fees for personal expenses (described below) are never qualified education expenses. Tax form for students Qualified education expenses for either credit do not include amounts paid for: Personal expenses. Tax form for students This means room and board, insurance, medical expenses (including student health fees), transportation, and other similar personal, living, or family expenses. Tax form for students Any course or other education involving sports, games, or hobbies, or any noncredit course, unless such course or other education is part of the student's degree program or (for the lifetime learning credit only) helps the student acquire or improve job skills. Tax form for students You should receive Form 1098–T, Tuition Statement, from the institution reporting either payments received in 2013 (box 1) or amounts billed in 2013 (box 2). Tax form for students However, the amount in box 1 or 2 of Form 1098–T may be different from the amount you paid (or are treated as having paid). Tax form for students In completing Form 8863, use only the amounts you actually paid (plus any amounts you are treated as having paid) in 2013, reduced as necessary, as described in Adjustments to Qualified Education Expenses , later. Tax form for students Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. Tax form for students Qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Tax form for students If you or the student takes a deduction for higher education expenses, such as on Schedule A or C (Form 1040), you cannot use those expenses in your qualified education expenses when figuring your education credits. Tax form for students Qualified education expenses for any academic period must be reduced by any tax-free educational assistance allocable to that academic period. Tax form for students See Adjustments to Qualified Education Expenses, later. Tax form for students Prepaid Expenses. Tax form for students   Qualified education expenses paid in 2013 for an academic period that begins in the first 3 months of 2014 can be used in figuring an education credit for 2013 only. Tax form for students See Academic period , earlier. Tax form for students For example, if you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Tax form for students    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Tax form for students Paid with borrowed funds. Tax form for students   You can claim an education credit for qualified education expenses paid with the proceeds of a loan. Tax form for students Use the expenses to figure the credit for the year in which the expenses are paid, not the year in which the loan is repaid. Tax form for students Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Tax form for students Student withdraws from class(es). Tax form for students   You can claim an education credit for qualified education expenses not refunded when a student withdraws. Tax form for students No Double Benefit Allowed You cannot do any of the following. Tax form for students Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education credit based on those same expenses. Tax form for students Claim more than one education credit based on the same qualified education expenses. Tax form for students Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). Tax form for students Claim an education credit based on qualified education expenses paid with educational assistance, such as a tax-free scholarship, grant, or employer-provided educational assistance. Tax form for students See Adjustments to Qualified Education Expenses, next. Tax form for students Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid in 2013 by or on behalf of that student under the following rules. Tax form for students The result is the amount of adjusted qualified education expenses for each student. Tax form for students Tax-free educational assistance. Tax form for students   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Tax form for students See Academic period , earlier. Tax form for students      Tax-free educational assistance includes:    Tax-free parts of scholarships and fellowships (see chapter 12 of this publication and chapter 1 of Pub. Tax form for students 970), The tax-free part of Pell grants (see chapter 1 of Pub. Tax form for students 970), The tax-free part of employer-provided educational assistance (see Pub. Tax form for students 970), Veterans' educational assistance (see chapter 1 of Pub. Tax form for students 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Tax form for students Generally, any scholarship or fellowship is treated as tax-free educational assistance. Tax form for students However, a scholarship or fellowship is not treated as tax-free educational assistance to the extent the student includes it in gross income (if the student is required to file a tax return) for the year the scholarship or fellowship is received and either: The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Tax form for students 970, chapter 1; or The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Tax form for students 970, chapter 1. Tax form for students You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year received. Tax form for students For details, see Adjustments of Qualified Education Expenses, in chapters 2 and 3 of Pub. Tax form for students 970. Tax form for students Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Tax form for students This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Tax form for students If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. Tax form for students If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. Tax form for students Refunds. Tax form for students   A refund of qualified education expenses may reduce qualified education expenses for the tax year or may require you to repay (recapture) the credit that you claimed in an earlier year. Tax form for students Some tax-free educational assistance received after 2013 may be treated as a refund. Tax form for students See Tax-free educational assistance, earlier. Tax form for students Refunds received in 2013. Tax form for students   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses paid in 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Tax form for students Refunds received after 2013 but before your income tax return is filed. Tax form for students   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received before you file your 2013 income tax return, reduce the amount of qualified education expenses for 2013 by the amount of the refund. Tax form for students Refunds received after 2013 and after your income tax return is filed. Tax form for students   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received after you file your 2013 income tax return, you may need to repay some or all of the credit that you claimed. Tax form for students See Credit recapture, next. Tax form for students Credit recapture. Tax form for students    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Tax form for students You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Tax form for students You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Tax form for students Include that amount as an additional tax for the year the refund or tax-free assistance was received. Tax form for students Example. Tax form for students    You paid $8,000 tuition and fees in December 2013 for your child's Spring semester beginning in January 2014. Tax form for students You filed your 2013 tax return on February 3, 2014, and claimed a lifetime learning credit of $1,600 ($8,000 qualified education expense paid x . Tax form for students 20). Tax form for students You claimed no other tax credits. Tax form for students After you filed your return, your child withdrew from two courses and you received a refund of $1,400. Tax form for students You must refigure your 2013 lifetime learning credit using $6,600 ($8,000 qualified education expenses − $1,400 refund). Tax form for students The refigured credit is $1,320 and your tax liability increased by $280. Tax form for students You must include the difference of $280 ($1,600 credit originally claimed − $1,320 refigured credit) as additional tax on your 2014 income tax return. Tax form for students See the instructions for your 2014 income tax return to determine where to include this tax. Tax form for students If you also pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Tax form for students Amounts that do not reduce qualified education expenses. Tax form for students   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Tax form for students   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Tax form for students The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Chapter 1 of Pub. Tax form for students 970. Tax form for students The use of the money is not restricted. Tax form for students   For examples, see chapter 2 in Pub. Tax form for students 970. Tax form for students Figure 35-A. Tax form for students Can You Claim an Education Credit for 2013? This image is too large to be displayed in the current screen. Tax form for students Please click the link to view the image. Tax form for students Figure 35-A. Tax form for students Can You Claim an Education Credit for 2013? Prev  Up  Next   Home   More Online Publications
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Understanding Your CP518 Individuals Notice

This is a final reminder notice that we still have no record that you filed your prior tax return(s).


What you need to do

  • File your tax return immediately or explain to us why you don't need to file.
  • Use the response form on your notice to explain:
    • why you're filing late
    • why you don't have to file
    • that you’ve already filed

If we don't hear from you

  • We may determine your tax for you, and penalty and interest may continue to accrue.
  • If you are owed a refund for the current tax year, or any prior year, it may be delayed because of this unfiled return.

You may want to

 

Page Last Reviewed or Updated: 16-Jan-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Tax Form For Students

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