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10 40 Ez Form

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10 40 Ez Form

10 40 ez form 11. 10 40 ez form   Departing Aliens and the Sailing or Departure Permit Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Aliens Not Required To Obtain Sailing or Departure Permits Aliens Required To Obtain Sailing or Departure PermitsGetting a Sailing or Departure Permit Forms To File Paying Taxes and Obtaining Refunds Bond To Ensure Payment Filing Annual U. 10 40 ez form S. 10 40 ez form Income Tax Returns Introduction Before leaving the United States, all aliens (except those listed under Aliens Not Required To Obtain Sailing or Departure Permits must obtain a certificate of compliance. 10 40 ez form This document, also popularly known as the sailing permit or departure permit, is part of the income tax form you must file before leaving. 10 40 ez form You will receive a sailing or departure permit after filing a Form 1040-C or Form 2063. 10 40 ez form These forms are discussed in this chapter. 10 40 ez form To find out if you need a sailing or departure permit, first read Aliens Not Required To Obtain Sailing or Departure Permits . 10 40 ez form If you do not fall into one of the categories in that discussion, you must obtain a sailing or departure permit. 10 40 ez form Read Aliens Required To Obtain Sailing or Departure Permits . 10 40 ez form Topics - This chapter discusses: Who needs a sailing permit, How to get a sailing permit, and Forms you file to get a sailing permit. 10 40 ez form Useful Items - You may want to see: Form (and Instructions) 1040-C U. 10 40 ez form S. 10 40 ez form Departing Alien Income Tax Return 2063 U. 10 40 ez form S. 10 40 ez form Departing Alien Income Tax Statement See chapter 12 for information about getting these forms. 10 40 ez form Aliens Not Required To Obtain Sailing or Departure Permits If you are included in one of the following categories, you do not have to get a sailing or departure permit before leaving the United States. 10 40 ez form If you are in one of these categories and do not have to get a sailing or departure permit, you must be able to support your claim for exemption with proper identification or give the authority for the exemption. 10 40 ez form Category 1. 10 40 ez form   Representatives of foreign governments with diplomatic passports, whether accredited to the United States or other countries, members of their households, and servants accompanying them. 10 40 ez form Servants who are leaving, but not with a person with a diplomatic passport, must get a sailing or departure permit. 10 40 ez form However, they can get a sailing or departure permit on Form 2063 without examination of their income tax liability by presenting a letter from the chief of their diplomatic mission certifying that: Their name appears on the “White List” (a list of employees of diplomatic missions), and They do not owe to the United States any income tax, and will not owe any tax up to and including the intended date of departure. 10 40 ez form   The statement must be presented to an IRS office. 10 40 ez form Category 2. 10 40 ez form    Employees of international organizations and foreign governments (other than diplomatic representatives exempt under category 1) and members of their households: Whose compensation for official services is exempt from U. 10 40 ez form S. 10 40 ez form tax under U. 10 40 ez form S. 10 40 ez form tax laws (described in chapter 10), and Who receive no other income from U. 10 40 ez form S. 10 40 ez form sources. 10 40 ez form If you are an alien in category (1) or (2), above, who filed the waiver under section 247(b) of the Immigration and Nationality Act, you must get a sailing or departure permit. 10 40 ez form This is true even if your income is exempt from U. 10 40 ez form S. 10 40 ez form tax because of an income tax treaty, consular agreement, or international agreement. 10 40 ez form Category 3. 10 40 ez form   Alien students, industrial trainees, and exchange visitors, including their spouses and children, who enter on an “F-1,” “F-2,” “H-3,” “H-4,” “J-1,” “J-2,” or “Q” visa only and who receive no income from U. 10 40 ez form S. 10 40 ez form sources while in the United States under those visas other than: Allowances to cover expenses incident to study or training in the United States, such as expenses for travel, maintenance, and tuition, The value of any services or food and lodging connected with this study or training, Income from employment authorized by the U. 10 40 ez form S. 10 40 ez form Citizenship and Immigration Services (USCIS), or Interest income on deposits that is not effectively connected with a U. 10 40 ez form S. 10 40 ez form trade or business. 10 40 ez form (See Interest Income in chapter 3. 10 40 ez form ) Category 4. 10 40 ez form   Alien students, including their spouses and children, who enter on an “M-1” or “M-2” visa only and who receive no income from U. 10 40 ez form S. 10 40 ez form sources while in the United States under those visas, other than: Income from employment authorized by the U. 10 40 ez form S. 10 40 ez form Citizenship and Immigration Services (USCIS) or Interest income on deposits that is not effectively connected with a U. 10 40 ez form S. 10 40 ez form trade or business. 10 40 ez form (See Interest Income in chapter 3. 10 40 ez form ) Category 5. 10 40 ez form   Certain other aliens temporarily in the United States who have received no taxable income during the tax year up to and including the date of departure or during the preceding tax year. 10 40 ez form If the IRS has reason to believe that an alien has received income subject to tax and that the collection of income tax is jeopardized by departure, it may then require the alien to obtain a sailing or departure permit. 10 40 ez form Aliens in this category are: Alien military trainees who enter the United States for training under the sponsorship of the Department of Defense and who leave the United States on official military travel orders, Alien visitors for business on a “B-1” visa, or on both a “B-1” visa and a “B-2” visa, who do not remain in the United States or a U. 10 40 ez form S. 10 40 ez form possession for more than 90 days during the tax year, Alien visitors for pleasure on a “B-2” visa, Aliens in transit through the United States or any of its possessions on a “C-1” visa, or under a contract, such as a bond agreement, between a transportation line and the Attorney General, and Aliens who enter the United States on a border-crossing identification card or for whom passports, visas, and border-crossing identification cards are not required, if they are: Visitors for pleasure, Visitors for business who do not remain in the United States or a U. 10 40 ez form S. 10 40 ez form possession for more than 90 days during the tax year, or In transit through the United States or any of its possessions. 10 40 ez form Category 6. 10 40 ez form   Alien residents of Canada or Mexico who frequently commute between that country and the United States for employment, and whose wages are subject to the withholding of U. 10 40 ez form S. 10 40 ez form tax. 10 40 ez form Aliens Required To Obtain Sailing or Departure Permits If you do not fall into one of the categories listed under Aliens Not Required To Obtain Sailing or Departure Permits, you must obtain a sailing or departure permit. 10 40 ez form To obtain a permit, file Form 1040-C or Form 2063 (whichever applies) with your local IRS office before you leave the United States. 10 40 ez form See Forms To File , later. 10 40 ez form You must also pay all the tax shown as due on Form 1040-C and any taxes due for past years. 10 40 ez form See Paying Taxes and Obtaining Refunds , later. 10 40 ez form Getting a Sailing or Departure Permit The following discussion covers when and where to get your sailing permit. 10 40 ez form Where to get a sailing or departure permit. 10 40 ez form   If you have been working in the United States, you should get the permit from an IRS office in the area of your employment, or you may obtain one from an IRS office in the area of your departure. 10 40 ez form When to get a sailing or departure permit. 10 40 ez form   You should get your sailing or departure permit at least 2 weeks before you plan to leave. 10 40 ez form You cannot apply earlier than 30 days before your planned departure date. 10 40 ez form Do not wait until the last minute in case there are unexpected problems. 10 40 ez form Papers to submit. 10 40 ez form   Getting your sailing or departure permit will go faster if you bring to the IRS office papers and documents related to your income and your stay in the United States. 10 40 ez form Bring the following records with you if they apply. 10 40 ez form Your passport and alien registration card or visa. 10 40 ez form Copies of your U. 10 40 ez form S. 10 40 ez form income tax returns filed for the past 2 years. 10 40 ez form If you were in the United States for less than 2 years, bring the income tax returns you filed for that period. 10 40 ez form Receipts for income taxes paid on these returns. 10 40 ez form Receipts, bank records, canceled checks, and other documents that prove your deductions, business expenses, and dependents claimed on your returns. 10 40 ez form A statement from each employer showing wages paid and tax withheld from January 1 of the current year to the date of departure if you were an employee. 10 40 ez form If you were self-employed, you must bring a statement of income and expenses up to the date you plan to leave. 10 40 ez form Proof of estimated tax payments for the past year and this year. 10 40 ez form Documents showing any gain or loss from the sale of personal property and/or real property, including capital assets and merchandise. 10 40 ez form Documents relating to scholarship or fellowship grants including: Verification of the grantor, source, and purpose of the grant. 10 40 ez form Copies of the application for, and approval of, the grant. 10 40 ez form A statement of the amount paid, and your duties and obligations under the grant. 10 40 ez form A list of any previous grants. 10 40 ez form Documents indicating you qualify for any special tax treaty benefits claimed. 10 40 ez form Document verifying your date of departure from the United States, such as an airline ticket. 10 40 ez form Document verifying your U. 10 40 ez form S. 10 40 ez form taxpayer identification number, such as a social security card or an IRS issued Notice CP 565 showing your individual taxpayer identification number (ITIN). 10 40 ez form Note. 10 40 ez form   If you are married and reside in a community property state, also bring the above-listed documents for your spouse. 10 40 ez form This applies whether or not your spouse requires a permit. 10 40 ez form Forms To File If you must get a sailing or departure permit, you must file Form 2063 or Form 1040-C. 10 40 ez form Employees in the IRS office can assist in filing these forms. 10 40 ez form Both forms have a “certificate of compliance” section. 10 40 ez form When the certificate of compliance is signed by an agent of the Field Assistance Area Director, it certifies that your U. 10 40 ez form S. 10 40 ez form tax obligations have been satisfied according to available information. 10 40 ez form Your Form 1040-C copy of the signed certificate, or the one detached from Form 2063, is your sailing or departure permit. 10 40 ez form Form 2063 This is a short form that asks for certain information but does not include a tax computation. 10 40 ez form The following departing aliens can get their sailing or departure permits by filing Form 2063. 10 40 ez form Aliens, whether resident or nonresident, who have had no taxable income for the tax year up to and including the date of departure and for the preceding year, if the period for filing the income tax return for that year has not expired. 10 40 ez form Resident aliens who have received taxable income during the tax year or preceding year and whose departure will not hinder the collection of any tax. 10 40 ez form However, if the IRS has information indicating that the aliens are leaving to avoid paying their income tax, they must file a Form 1040-C. 10 40 ez form Aliens in either of these categories who have not filed an income tax return or paid income tax for any tax year must file the return and pay the income tax before they can be issued a sailing or departure permit on Form 2063. 10 40 ez form The sailing or departure permit detached from Form 2063 can be used for all departures during the current year. 10 40 ez form However, the IRS may cancel the sailing or departure permit for any later departure if it believes the collection of income tax is jeopardized by that later departure. 10 40 ez form Form 1040-C If you must get a sailing or departure permit and you do not qualify to file Form 2063, you must file Form 1040-C. 10 40 ez form Ordinarily, all income received or reasonably expected to be received during the tax year up to and including the date of departure must be reported on Form 1040-C and the tax on it must be paid. 10 40 ez form When you pay any tax shown as due on the Form 1040-C, and you file all returns and pay all tax due for previous years, you will receive a sailing or departure permit. 10 40 ez form However, the IRS may permit you to furnish a bond guaranteeing payment instead of paying the taxes for certain years. 10 40 ez form See Bond To Ensure Payment , discussed later. 10 40 ez form The sailing or departure permit issued under the conditions in this paragraph is only for the specific departure for which it is issued. 10 40 ez form Returning to the United States. 10 40 ez form   If you furnish the IRS with information showing, to the satisfaction of the IRS, that you intend to return to the United States and that your departure does not jeopardize the collection of income tax, you can get a sailing or departure permit by filing Form 1040-C without having to pay the tax shown on it. 10 40 ez form You must, however, file all income tax returns that have not yet been filed as required, and pay all income tax that is due on these returns. 10 40 ez form   Your Form 1040-C must include all income received and reasonably expected to be received during the entire year of departure. 10 40 ez form The sailing or departure permit issued with this Form 1040-C can be used for all departures during the current year. 10 40 ez form However, the Service may cancel the sailing or departure permit for any later departure if the payment of income tax appears to be in jeopardy. 10 40 ez form Joint return on Form 1040-C. 10 40 ez form   Departing husbands and wives who are nonresident aliens cannot file joint returns. 10 40 ez form However, if both spouses are resident aliens, they can file a joint return on Form 1040-C if: Both spouses can reasonably be expected to qualify to file a joint return at the normal close of their tax year, and The tax years of the spouses end at the same time. 10 40 ez form Paying Taxes and Obtaining Refunds You must pay all tax shown as due on the Form 1040-C at the time of filing it, except when a bond is furnished, or the IRS is satisfied that your departure does not jeopardize the collection of income tax. 10 40 ez form You must also pay any taxes due for past years. 10 40 ez form If the tax computation on Form 1040-C results in an overpayment, there is no tax to pay at the time you file that return. 10 40 ez form However, the IRS cannot provide a refund at the time of departure. 10 40 ez form If you are due a refund, you must file either Form 1040NR or Form 1040NR-EZ at the end of the tax year. 10 40 ez form Bond To Ensure Payment Usually, you must pay the tax shown as due on Form 1040-C when you file it. 10 40 ez form However, if you pay all taxes due that you owe for prior years, you can furnish a bond guaranteeing payment instead of paying the income taxes shown as due on the Form 1040-C or the tax return for the preceding year if the period for filing that return has not expired. 10 40 ez form The bond must equal the tax due plus interest to the date of payment as figured by the IRS. 10 40 ez form Information about the form of bond and security on it can be obtained from your IRS office. 10 40 ez form Filing Annual U. 10 40 ez form S. 10 40 ez form Income Tax Returns Form 1040-C is not an annual U. 10 40 ez form S. 10 40 ez form income tax return. 10 40 ez form If an income tax return is required by law, that return must be filed even though a Form 1040-C has already been filed. 10 40 ez form Chapters 5 and 7 discuss filing an annual U. 10 40 ez form S. 10 40 ez form income tax return. 10 40 ez form The tax paid with Form 1040-C should be taken as a credit against the tax liability for the entire tax year on your annual U. 10 40 ez form S. 10 40 ez form income tax return. 10 40 ez form Prev  Up  Next   Home   More Online Publications
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The 10 40 Ez Form

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