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1040ez Tax Instructions

Amend Federal Tax ReturnWhere To File A 1040xAmend My Federal Tax ReturnTax Act 2011 LoginState EfileIrs Gov Form 1040nr1040ez Forms And InstructionsIrs Gov 1040xMy PayPrintable 1040ez FormTax Return FormH&r Block Online Tax FilingFiling Tax ReturnWhere Do I Send My Federal Tax Return 2012File For Extension 2012 TaxesHow To File A Amended ReturnHow Long Does An Amended Tax Return TakeHow To File Amended Tax Return For 2011How To File An Amended Tax Return For 20102007 Income Tax OnlineAmend Tax Return OnlineTax Return Amendment Form1040nr InstructionsState Free FileIncome Tax Preparation FeesWww Irs Gov EfileIrs 1040ez 2012 InstructionsFree Tax Return CalculatorAmendment FormMilitary Pay ChartFree File Federal And State Taxes OnlineForm 1040x Amended Us Individual Income Tax ReturnE File 2012Hr Block For MilitaryIrs Free File Fillable Forms1040ez Tax Booklet2010 Form 1040nrFree Tax AmendmentH R Block2012 Federal 1040ez Form

1040ez Tax Instructions

1040ez tax instructions Publication 584-B - Additional Material Table of Contents This image is too large to be displayed in the current screen. 1040ez tax instructions Please click the link to view the image. 1040ez tax instructions Office Furniture and Fixtures This image is too large to be displayed in the current screen. 1040ez tax instructions Please click the link to view the image. 1040ez tax instructions Information Systems This image is too large to be displayed in the current screen. 1040ez tax instructions Please click the link to view the image. 1040ez tax instructions Motor Vehicles This image is too large to be displayed in the current screen. 1040ez tax instructions Please click the link to view the image. 1040ez tax instructions Office Supplies This image is too large to be displayed in the current screen. 1040ez tax instructions Please click the link to view the image. 1040ez tax instructions Building, Components, and Land This image is too large to be displayed in the current screen. 1040ez tax instructions Please click the link to view the image. 1040ez tax instructions Equipment Tax Publications for Individual TaxpayersSee How To Get Tax Help for a variety of ways to get publications, including by computer, phone, and mail. 1040ez tax instructions General Guides 1 Your Rights as a Taxpayer 17 Your Federal Income Tax For Individuals 334 Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) 509 Tax Calendars for 2012 910 IRS Guide to Free Tax Services Specialized Publications 3 Armed Forces’ Tax Guide 54 Tax Guide for U. 1040ez tax instructions S. 1040ez tax instructions Citizens and Resident Aliens Abroad 225 Farmer’s Tax Guide 463 Travel, Entertainment, Gift, and Car Expenses 501 Exemptions, Standard Deduction, and Filing Information 502 Medical and Dental Expenses (Including the Health Coverage Tax Credit) 503 Child and Dependent Care Expenses 504 Divorced or Separated Individuals 505 Tax Withholding and Estimated Tax 514 Foreign Tax Credit for Individuals 516 U. 1040ez tax instructions S. 1040ez tax instructions Government Civilian Employees Stationed Abroad 517 Social Security and Other Information for Members of the Clergy and Religious Workers 519 U. 1040ez tax instructions S. 1040ez tax instructions Tax Guide for Aliens 521 Moving Expenses 523 Selling Your Home 524 Credit for the Elderly or the Disabled 525 Taxable and Nontaxable Income 526 Charitable Contributions 527 Residential Rental Property (Including Rental of Vacation Homes) 529 Miscellaneous Deductions 530 Tax Information for Homeowners 531 Reporting Tip Income 535 Business Expenses 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 537 Installment Sales 541 Partnerships 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses (Including Capital Gains and Losses) 551 Basis of Assets 554 Tax Guide for Seniors 555 Community Property 556 Examination of Returns, Appeal Rights, and Claims for Refund 559 Survivors, Executors, and Administrators 561 Determining the Value of Donated Property 570 Tax Guide for Individuals With Income From U. 1040ez tax instructions S. 1040ez tax instructions Possessions 571 Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain Tax-Exempt Organizations 575 Pension and Annuity Income 584 Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 587 Business Use of Your Home (Including Use by Daycare Providers) 590 Individual Retirement Arrangements (IRAs) 594 The IRS Collection Process 596 Earned Income Credit (EIC) 721 Tax Guide to U. 1040ez tax instructions S. 1040ez tax instructions Civil Service Retirement Benefits 901 U. 1040ez tax instructions S. 1040ez tax instructions Tax Treaties 907 Tax Highlights for Persons with Disabilities 908 Bankruptcy Tax Guide 915 Social Security and Equivalent Railroad Retirement Benefits 925 Passive Activity and At-Risk Rules 926 Household Employer’s Tax Guide For Wages Paid in 2012 929 Tax Rules for Children and Dependents 936 Home Mortgage Interest Deduction 946 How To Depreciate Property 947 Practice Before the IRS and Power of Attorney 950 Introduction to Estate and Gift Taxes 969 Health Savings Accounts and Other Tax-Favored Health Plans 970 Tax Benefits for Education 971 Innocent Spouse Relief 972 Child Tax Credit 1542 Per Diem Rates (For Travel Within the Continental United States) 1544 Reporting Cash Payments of Over $10,000 (Received in a Trade or Business) 1546 Taxpayer Advocate Service – Your Voice at the IRS Spanish Language Publications 1SP Derechos del Contribuyente 17(SP) El Impuesto Federal sobre los Ingresos Para Personas Fisicas 547(SP) Hechos Fortuitos Desastres y Robos 584(SP) Registro de Pérdidas por Hechos Fortuitos (Imprevistos), Desastres y Robos (Propiedad de Uso Personal) 594SP El Proceso de Cobro del IRS 596SP Crédito por Ingreso del Trabajo 850(EN/SP) English-Spanish Glossary of Words and Phrases Used in Publications Issued by the Internal Revenue Service 1544 (SP) Informe de Pagos en Efectivo en Exceso de $10,000 (Recibidos en una Ocupación o Negocio) Commonly Used Tax FormsSee How To Get Tax Help for a variety of ways to get forms, including by computer, phone, and mail. 1040ez tax instructions Form Number and Title 1040 U. 1040ez tax instructions S. 1040ez tax instructions Individual Income Tax Return Sch A Itemized Deductions Sch B Interest and Ordinary Dividends Sch C Profit or Loss From Business Sch C-EZ Net Profit From Business Sch D Capital Gains and Losses Sch E Supplemental Income and Loss Sch EIC Earned Income Credit Sch F Profit or Loss From Farming Sch H Household Employment Taxes Sch J Income Averaging for Farmers and Fishermen Sch R Credit for the Elderly or the Disabled Sch SE Self-Employment Tax 1040A U. 1040ez tax instructions S. 1040ez tax instructions Individual Income Tax Return Sch B Interest and Ordinary Dividends 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1040-ES Estimated Tax for Individuals 1040X Amended U. 1040ez tax instructions S. 1040ez tax instructions Individual Income Tax Return 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2441 Child and Dependent Care Expenses 2848 Power of Attorney and Declaration of Representative 2848(SP) Poder Legal y Declaración del Representante 3903 Moving Expenses 4562 Depreciation and Amortization 4868 Application for Automatic Extension of Time To File U. 1040ez tax instructions S. 1040ez tax instructions Individual Income Tax Return 4868(SP) Solicitud de Prórroga Automática para Presentar la Declaración del Impuesto sobre el Ingreso Personal de los Estados Unidos 4952 Investment Interest Expense Deduction 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 6251 Alternative Minimum Tax—Individuals 8283 Noncash Charitable Contributions 8582 Passive Activity Loss Limitations 8606 Nondeductible IRAs 8812 Additional Child Tax Credit 8822 Change of Address 8829 Expenses for Business Use of Your Home 8863 Education Credits (American Opportunity and Lifetime Learning Credits) 8949 Sales and Other Dispositions of Capital Assets 9465 Installment Agreement Request 9465(SP) Solicitud para un Plan de Pagos a Plazos         Prev  Up  Next   Home   More Online Publications
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Hurricane Telephone Hot Lines

Phone numbers for services to help you recover from a hurricane.

Don't Know Whom to Call?

Health and Safety Hot Lines

  • Food Safety
    Call 1-888-MPHotline (1-888-674-6854) with food safety questions. Available in English and Spanish.
  • Health and Safety
    Call 1-800-CDC-INFO (1-800-232-4636), TTY 1-888-232-6348, for information on hazards, safe clean up, and preventing illness and injury. Available in English and Spanish, 24 hours a day, 7 days a week.
  • Mental Health Crisis Counseling
    Call 1-800-273-TALK (1-800-273-8255), TTY 1-800-799-4889, if you or a loved one are in emotional distress or suicidal in the aftermath of the disaster. You will be connected to a trained counselor at a suicide crisis center nearest you. Available 24 hours a day, 7 days a week. Spanish counseling available at 1-888-628-9454.
  • North Carolina Emergency Management Division
    North Carolina residents can call for updated weather information, highway closings, shelter information, and feeding sites. Available in English and Spanish 1-888-835-9966, TTY 1-877-877-1765 or 711 (Relay N.C.).
  • Report Chemical and Oil Spills
    Call 1-800-424-8802, TDD 202-267-4477 to report a chemical or oil spill to the U.S. Coast Guard.

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Survivor Assistance Hot Lines

  • American Red Cross
    Call 1-800-RED-CROSS (1-800-733-2767) for information on evacuation, shelter, and assistance.
  • Business Disaster Loans
    Call 1-800-659-2955 TTY 1-800-877-8339 for business disaster loan program information.
  • Consumer Help Line and Fraud Complaints
    Call 1-877-FTC-HELP (1-877-382-4357) to report consumer fraud to the Federal Trade Commission.
  • Employee Benefits
    If you have questions about your health or retirement benefits from your employer's plan, contact the Employee Benefits Security Administration calling toll free 1-866-444-3272 with any questions.
  • FEMA Assistance
    Call 1-800-621-FEMA (1-800-621-3362) TTY 1-800-462-7585 or register online for assistance. You can request FEMA assistance or review your previous request. Available in English and Spanish.
  • Lost Bank Records, ATM Cards, Reach Your Bank and More
    Call 1-877-ASK-FDIC (1-877-275-3342) TDD 1-800-925-4618.
  • National Flood Insurance Program
    Call 1-888-379-9531 TTY 1-800-427-5593 to file a claim or for program information. Available in English and Spanish.
  • Social Security Benefits
    Call 1-800-772-1213 TTY 1-800-325-0778 if you currently receive benefits from the Social Security Administration and are unable to get your payment. Available in English and Spanish.
  • Tax Matters (Federal)
    Call 1-800-829-1040 TDD 1-800-829-4059 to find out about tax relief, get a copy of your tax return transcript and receive a disaster tax loss kit.
  • Unemployment Assistance for Disaster Survivors
    Call 1-866-4-USA-DOL, 1-866-487-2365 for more information on registering for unemployment insurance and disaster unemployment assistance. Available in English and Spanish 24 hours a day. (U.S. Department of Labor)

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Federal Employees, Military and Veterans Hot Lines

International Evacuees and Foreign Nationals

If you are a tourist or other foreign national affected by a disaster in the U.S., contact your embassy or consulate.

The 1040ez Tax Instructions

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