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File 1040ez Form

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File 1040ez Form

File 1040ez form Index A Accuracy of deposits rule, Accuracy of Deposits Rule Additional Medicare Tax, Reminders, Additional Medicare Tax withholding. File 1040ez form , Additional Medicare Tax withholding adjustments. File 1040ez form Adjustments, 13. File 1040ez form Reporting Adjustments to Form 941 or Form 944 Aliens, nonresident, Withholding income taxes on the wages of nonresident alien employees. File 1040ez form , Withholding of social security and Medicare taxes on nonresident aliens. File 1040ez form Allocated tips, Allocated tips. File 1040ez form Archer MSAs, Health Savings Accounts and medical savings accounts. File 1040ez form Assistance (see Tax help) B Backup withholding, Nonpayroll Income Tax Withholding Business expenses, employee, Employee business expense reimbursements. File 1040ez form C Calendar, Calendar Certain foreign persons treated as American employers, Foreign persons treated as American employers. File 1040ez form Change of business address or responsible party, Change of Business Address or Responsible Party COBRA premium assistance credit, COBRA premium assistance credit. File 1040ez form Correcting employment taxes, Correcting employment taxes. File 1040ez form Correcting errors, (prior period adjustments) Form 941, Prior Period Adjustments D Delivery services, private, Private Delivery Services Depositing taxes Penalties, Deposit Penalties Rules, 11. File 1040ez form Depositing Taxes Differential wage payments, Differential wage payments. File 1040ez form E E-file, Electronic filing by reporting agents. File 1040ez form Election worker, State and local government employers. File 1040ez form Electronic, Electronic deposit requirement. File 1040ez form Electronic deposit requirement, Electronic deposit requirement. File 1040ez form Electronic Federal Tax Payment System (EFTPS), Electronic deposit requirement. File 1040ez form Electronic filing, Electronic Filing and Payment, Electronic filing by reporting agents. File 1040ez form Eligibility for employment, Hiring New Employees Employees defined, Employee status under common law. File 1040ez form Employer identification number (EIN), 1. File 1040ez form Employer Identification Number (EIN) Employer responsibilities, Paying Wages, Pensions, or Annuities F Family employees, 3. File 1040ez form Family Employees Final return, Final return. File 1040ez form Form 944, 12. File 1040ez form Filing Form 941 or Form 944 Fringe benefits, Fringe benefits. File 1040ez form FUTA tax, 14. File 1040ez form Federal Unemployment (FUTA) Tax G Government employers, Federal Government employers. File 1040ez form H Health insurance plans, Health insurance plans. File 1040ez form Health Savings Accounts (HSAs), Health Savings Accounts and medical savings accounts. File 1040ez form Hiring new employees, Hiring New Employees Household employees, Exceptions. File 1040ez form I Income tax withholding, Income Tax Withholding, 16. File 1040ez form How To Use the Income Tax Withholding Tables Information returns, Information Returns International social security agreements, International social security agreements. File 1040ez form L Long-term care insurance, Health insurance plans. File 1040ez form Lookback period, When To Deposit M Meals and lodging, Meals and lodging. File 1040ez form Medical care, Medical care reimbursements. File 1040ez form Medical savings accounts, Health Savings Accounts and medical savings accounts. File 1040ez form Medicare tax, Social Security and Medicare Taxes Mileage, Per diem or other fixed allowance. File 1040ez form Monthly deposit schedule, Monthly Deposit Schedule Moving expenses, Moving expenses. File 1040ez form N New employees, Hiring New Employees Noncash wages, Wages not paid in money. File 1040ez form Nonemployee compensation, Nonpayroll Income Tax Withholding P Part-time workers, Part-Time Workers Payroll period, 8. File 1040ez form Payroll Period Penalties, Deposit Penalties, Penalties. File 1040ez form Private delivery services, Private Delivery Services Publications (see Tax help) R Reconciling Forms W-2 and Forms 941 or 944, Reconciling Forms W-2, W-3, and 941 or 944. File 1040ez form Recordkeeping, Recordkeeping Reimbursements, Accountable plan. File 1040ez form , Nonaccountable plan. File 1040ez form , Per diem or other fixed allowance. File 1040ez form Repayments, wages, Wage Repayments S Seasonal employers, Exceptions. File 1040ez form Semiweekly deposit schedule, Semiweekly Deposit Schedule Sick pay, Sick pay. File 1040ez form Social security and Medicare taxes, Social Security and Medicare Taxes Social security number, employee, 4. File 1040ez form Employee's Social Security Number (SSN) Spouse, Business Owned and Operated by Spouses Standard mileage rate, Per diem or other fixed allowance. File 1040ez form Statutory employees, Employee status under common law. File 1040ez form Statutory nonemployees, Statutory employees. File 1040ez form Successor employer, Successor employer. File 1040ez form , Successor employer. File 1040ez form Supplemental wages, 7. File 1040ez form Supplemental Wages T Tax help, How To Get Tax Help Telephone help, Telephone Help Third-party sick pay tax adjustment, Adjustment of tax on third-party sick pay. File 1040ez form Tip Rate Determination Agreement, Tip Rate Determination and Education Program. File 1040ez form Tip Rate Determination and Education Program, Tip Rate Determination and Education Program. File 1040ez form Tips, 6. File 1040ez form Tips, Tips treated as supplemental wages. File 1040ez form Trust fund recovery penalty, Trust fund recovery penalty. File 1040ez form TTY/TDD information, How To Get Tax Help U Unemployment tax, federal, 14. File 1040ez form Federal Unemployment (FUTA) Tax V Vacation pay, Vacation pay. File 1040ez form W Wage repayments, Wage Repayments Wages defined, 5. File 1040ez form Wages and Other Compensation Wages not paid in money, Wages not paid in money. File 1040ez form Withholding Backup, Nonpayroll Income Tax Withholding Certificate, Using Form W-4 to figure withholding. File 1040ez form Exemption, Exemption from federal income tax withholding. File 1040ez form Fringe benefits, Withholding on fringe benefits. File 1040ez form Income tax, Income Tax Withholding Levies, Amounts exempt from levy on wages, salary, and other income. File 1040ez form Nonresident aliens, Withholding of social security and Medicare taxes on nonresident aliens. File 1040ez form Pensions and annuities, Nonpayroll Income Tax Withholding Percentage method, Percentage Method Social security and Medicare taxes, Social Security and Medicare Taxes Table instructions, 16. File 1040ez form How To Use the Income Tax Withholding Tables Tips, Tips treated as supplemental wages. File 1040ez form Wage bracket method, Wage Bracket Method Z Zero wage return, Paying Wages, Pensions, or Annuities Prev  Up     Home   More Online Publications
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Understanding Your CP284 Notice

We approved your Form 1128, Application to Adopt, Change, or Retain a Tax Year.


What you need to do

  • Timely file a short period annual return for the tax year ending that is shown on Form 1128.
  • Keep this notice for your records.

You may want to

Call 1-800-829-3676 (1-800-TAX-FORM) to order forms and publications or visit our website, www.irs.gov, to download them.


Answers to Common Questions

What is Form 1128?
When approved, this form allows a taxpayer to change the date on which they close their tax year. Partnerships, S corporations, personal service corporations (PSCs), or trusts may be required to file the form to adopt or retain a certain tax year.


Understanding your notice

Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP284, Page 1

Page Last Reviewed or Updated: 09-Dec-2013

Printable samples of this notice (PDF)

 

 

How to get help

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

The File 1040ez Form

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