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Us Irs Tax Forms

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Us Irs Tax Forms

Us irs tax forms 15. Us irs tax forms   Estimated Tax Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Special Estimated Tax Rules for Qualified FarmersQualified Farmer Special Rules for Qualified Farmers Estimated Tax Penalty for 2013 What's New Net Investment Income Tax. Us irs tax forms . Us irs tax forms  For tax years beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). Us irs tax forms NIIT is a 3. Us irs tax forms 8% tax on the lesser of net investment income or the excess of your modified adjusted gross income (MAGI) over the threshold amount. Us irs tax forms NIIT may need to be included when calculating your estimated tax. Us irs tax forms For more information, see Publication 505,Tax Withholding and Estimated Tax. Us irs tax forms Additional Medicare Tax. Us irs tax forms  For tax years beginning in 2013, a 0. Us irs tax forms 9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income over a threshold amount based on your filing status. Us irs tax forms You may need to include this amount when figuring your estimated tax. Us irs tax forms For more information, see Publication 505. Us irs tax forms Introduction Estimated tax is the method used to pay tax on income that is not subject to withholding. Us irs tax forms See Publication 505 for the general rules and requirements for paying estimated tax. Us irs tax forms If you are a qualified farmer, defined below, you are subject to the special rules covered in this chapter for paying estimated tax. Us irs tax forms Topics - This chapter discusses: Special estimated tax rules for qualified farmers Estimated tax penalty Useful Items - You may want to see: Publication 505 Tax Withholding and Estimated Tax Form (and Instructions) 1040 U. Us irs tax forms S. Us irs tax forms Individual Income Tax Return 1040-ES Estimated Tax for Individuals 2210-F Underpayment of Estimated Tax by Farmers and Fishermen See chapter 16 for information about getting publications and forms. Us irs tax forms Special Estimated Tax Rules for Qualified Farmers Special rules apply to the payment of estimated tax by individuals who are qualified farmers. Us irs tax forms If you are not a qualified farmer as defined next, see Publication 505 for the estimated tax rules that apply. Us irs tax forms Qualified Farmer An individual is a qualified farmer for 2013 if at least two-thirds of his or her gross income from all sources for 2012 or 2013 was from farming. Us irs tax forms See Gross Income , next, for information on how to figure your gross income from all sources and see Gross Income From Farming , later, for information on how to figure your gross income from farming. Us irs tax forms See also Percentage From Farming , later, for information on how to determine the percentage of your gross income from farming. Us irs tax forms Gross Income Gross income is all income you receive in the form of money, goods, property, and services that is not exempt from income tax. Us irs tax forms On a joint return, you must add your spouse's gross income to your gross income. Us irs tax forms To decide whether two-thirds of your gross income was from farming, use as your gross income the total of the following income (not loss) amounts from your tax return. Us irs tax forms Wages, salaries, tips, etc. Us irs tax forms Taxable interest. Us irs tax forms Ordinary dividends. Us irs tax forms Taxable refunds, credits, or offsets of state and local income taxes. Us irs tax forms Alimony. Us irs tax forms Gross business income from Schedule C (Form 1040). Us irs tax forms Gross business receipts from Schedule C-EZ (Form 1040). Us irs tax forms Capital gains from Schedule D (Form 1040). Us irs tax forms Losses are not netted against gains. Us irs tax forms Gains on sales of business property. Us irs tax forms Taxable IRA distributions, pensions, annuities, and social security benefits. Us irs tax forms Gross rental income from Schedule E (Form 1040). Us irs tax forms Gross royalty income from Schedule E (Form 1040). Us irs tax forms Taxable net income from an estate or trust reported on Schedule E (Form 1040). Us irs tax forms Income from a Real Estate Mortgage Investment Conduit reported on Schedule E (Form 1040). Us irs tax forms Gross farm rental income from Form 4835. Us irs tax forms Gross farm income from Schedule F (Form 1040). Us irs tax forms Your distributive share of gross income from a partnership, or limited liability company treated as a partnership, from Schedule K-1 (Form 1065). Us irs tax forms Your pro rata share of gross income from an S corporation, from Schedule K-1 (Form 1120S). Us irs tax forms Unemployment compensation. Us irs tax forms Other income not included with any of the items listed above. Us irs tax forms Gross Income From Farming Gross income from farming is income from cultivating the soil or raising agricultural commodities. Us irs tax forms It includes the following amounts. Us irs tax forms Income from operating a stock, dairy, poultry, bee, fruit, or truck farm. Us irs tax forms Income from a plantation, ranch, nursery, range, orchard, or oyster bed. Us irs tax forms Crop shares for the use of your land. Us irs tax forms Gains from sales of draft, breeding, dairy, or sporting livestock. Us irs tax forms Gross income from farming is the total of the following amounts from your tax return. Us irs tax forms Gross farm income from Schedule F (Form 1040). Us irs tax forms Gross farm rental income from Form 4835. Us irs tax forms Gross farm income from Schedule E (Form 1040), Parts II and III. Us irs tax forms Gains from the sale of livestock used for draft, breeding, sport, or dairy purposes reported on Form 4797. Us irs tax forms For more information about income from farming, see chapter 3. Us irs tax forms Farm income does not include any of the following: Wages you receive as a farm employee. Us irs tax forms Income you receive from contract grain harvesting and hauling with workers and machines you furnish. Us irs tax forms Gains you receive from the sale of farm land and depreciable farm equipment. Us irs tax forms Percentage From Farming Figure your gross income from all sources, discussed earlier. Us irs tax forms Then figure your gross income from farming, discussed earlier. Us irs tax forms Divide your farm gross income by your total gross income to determine the percentage of gross income from farming. Us irs tax forms Example 1. Us irs tax forms Jane Smith had the following total gross income and farm gross income amounts in 2013. Us irs tax forms Gross Income   Total Farm Taxable interest $3,000   Dividends 500   Rental income (Sch E) 41,500   Farm income (Sch F) 75,000 $75,000 Gain (Form 4797) 5,000 5,000 Total $125,000 $80,000 Schedule D showed gain from the sale of dairy cows carried over from Form 4797 ($5,000) in addition to a loss from the sale of corporate stock ($2,000). Us irs tax forms However, that loss is not netted against the gain to figure Ms. Us irs tax forms Smith's total gross income or her gross farm income. Us irs tax forms Her gross farm income is 64% of her total gross income ($80,000 ÷ $125,000 = 0. Us irs tax forms 64). Us irs tax forms Special Rules for Qualified Farmers The following special estimated tax rules apply if you are a qualified farmer for 2013. Us irs tax forms You do not have to pay estimated tax if you file your 2013 tax return and pay all the tax due by March 3, 2014. Us irs tax forms You do not have to pay estimated tax if your 2013 income tax withholding (including any amount applied to your 2013 estimated tax from your 2012 return) will be at least 662/3% (. Us irs tax forms 6667) of the total tax shown on your 2013 tax return or 100% of the total tax shown on your 2012 return. Us irs tax forms If you must pay estimated tax, you are required to make only one estimated tax payment (your required annual payment) by January 15, 2014, using special rules to figure the amount of the payment. Us irs tax forms See Required Annual Payment , next, for details. Us irs tax forms Figure 15-1 presents an overview of the special estimated tax rules that apply to qualified farmers. Us irs tax forms Example 2. Us irs tax forms Assume the same fact as in Example 1. Us irs tax forms Ms. Us irs tax forms Smith's gross farm income is only 64% of her total income. Us irs tax forms Therefore, based on her 2013 income, she does not qualify to use the special estimated tax rules for qualified farmers. Us irs tax forms However, she does qualify if at least two-thirds of her 2012 gross income was from farming. Us irs tax forms Example 3. Us irs tax forms Assume the same facts as in Example 1 except that Ms. Us irs tax forms Smith's farm income from Schedule F was $90,000 instead of $75,000. Us irs tax forms This made her total gross income $140,000 ($3,000 + $500 + $41,500 + $90,000 + $5,000) and her farm gross income $95,000 ($90,000 + $5,000). Us irs tax forms She qualifies to use the special estimated tax rules for qualified farmers, since 67. Us irs tax forms 9% (at least two-thirds) of her gross income is from farming ($95,000 ÷ $140,000 = . Us irs tax forms 679). Us irs tax forms Required Annual Payment If you are a qualified farmer and must pay estimated tax for 2013, use the worksheet on Form 1040-ES to figure the amount of your required annual payment. Us irs tax forms Apply the following special rules for qualified farmers to the worksheet. Us irs tax forms On line 14a, multiply line 13c by 662/3% (. Us irs tax forms 6667). Us irs tax forms On line 14b, enter 100% of the tax shown on your 2012 tax return regardless of the amount of your adjusted gross income. Us irs tax forms For this purpose, the “tax shown on your 2012 tax return” is the amount on line 61 of your 2012 return modified by certain adjustments. Us irs tax forms For more information, see chapter 4 of Publication 505. Us irs tax forms Estimated Tax Penalty for 2013 If you do not pay all your required estimated tax for 2013 by January 15, 2014, or file your 2013 return and pay any tax due by March 3, 2014, you may owe a penalty. Us irs tax forms Use Form 2210-F, Underpayment of Estimated Tax by Farmers and Fishermen, to determine if you owe a penalty. Us irs tax forms See the instructions for Form 2210-F. Us irs tax forms Figure 15-1. Us irs tax forms Estimated Tax for Farmers Please click here for the text description of the image. Us irs tax forms Figure 2–A If you receive a penalty notice, do not ignore it, even if you think it is in error. Us irs tax forms You may get a penalty notice even though you filed your return on time, attached Form 2210-F, and met the gross-income-from-farming requirement. Us irs tax forms If you receive a penalty notice for underpaying estimated tax and you think it is in error, write to the address on the notice and explain why you think the notice is in error. Us irs tax forms Include a computation similar to the one in Example 1 (earlier), showing that you met the gross income from farming requirement. Us irs tax forms Prev  Up  Next   Home   More Online Publications
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The Us Irs Tax Forms

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