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Free 2011 Taxes Online

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Free 2011 Taxes Online

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Free 2011 taxes online Money market funds, Money Market Funds Interest income, Money market funds. Free 2011 taxes online Mortgages Revenue bonds, Mortgage revenue bonds. Free 2011 taxes online Secondary liability on home, Secondary liability on home mortgage. Free 2011 taxes online Seller-financed, Interest on seller-financed mortgage. Free 2011 taxes online Municipal bonds, State or Local Government Obligations, Reporting tax-exempt interest. Free 2011 taxes online , Tax-exempt state and local government bonds. Free 2011 taxes online (see also State or local government obligations) Mutual funds, Capital Gain Distributions, Other income (nonpassive income). Free 2011 taxes online , Choosing to include net capital gain. Free 2011 taxes online , Including mutual fund or REMIC expenses in income. Free 2011 taxes online , Shares in a mutual fund or REIT. Free 2011 taxes online , Special Rules for Mutual Funds, Loss on mutual fund or REIT stock held 6 months or less. Free 2011 taxes online Individual retirement arrangements (IRAs), Qualified retirement plans and IRAs. Free 2011 taxes online publicly offered, Publicly-offered mutual funds. Free 2011 taxes online N Net Investment Income Tax, What's New, Net investment income tax (NIIT). Free 2011 taxes online New York Liberty bonds, New York Liberty bonds. Free 2011 taxes online NIIT, What's New, Net investment income tax (NIIT). Free 2011 taxes online Nominee distributions Dividends, Nominees. Free 2011 taxes online , Nominees. Free 2011 taxes online Interest income, Nominees. Free 2011 taxes online , Nominee distributions. Free 2011 taxes online Original issue discount, Nominee. Free 2011 taxes online Nonbusiness bad debts, Nonbusiness bad debt. Free 2011 taxes online , Nonbusiness Bad Debts Noncapital assets, Capital Assets and Noncapital Assets Nondeductible investment expenses, Nondeductible Expenses Nondividend distributions, Nondividend Distributions Nonequity options, Nonequity option. Free 2011 taxes online Nonqualified preferred stock, Nonqualified preferred stock. Free 2011 taxes online Nonresident aliens Backup withholding, Nonresident aliens. Free 2011 taxes online Nontaxable return of capital, Basis adjustment. Free 2011 taxes online Nontaxable stock rights, Nontaxable stock rights. Free 2011 taxes online Nontaxable trades, Nontaxable Trades, Nontaxable trades. Free 2011 taxes online Notes Individuals, bought at discount, Notes of individuals. Free 2011 taxes online U. Free 2011 taxes online S. Free 2011 taxes online Treasury (see U. Free 2011 taxes online S. Free 2011 taxes online Treasury bills, notes, and bonds) O Office expenses, Clerical help and office rent. Free 2011 taxes online Options, Options Calls and puts, Puts and Calls Cash settlement, Cash-settled options. Free 2011 taxes online , Cash settlement option. Free 2011 taxes online Dealer equity, Dealer equity option. Free 2011 taxes online Deep-in-the-money, Qualified covered call options and optioned stock. Free 2011 taxes online Employee stock, Reminders Equity, Equity option. Free 2011 taxes online Gain or loss, Options, Qualified covered call options and optioned stock. Free 2011 taxes online Holding period, Option exercised. Free 2011 taxes online Listed, Listed option. Free 2011 taxes online Nonequity, Nonequity option. Free 2011 taxes online Qualified covered call, Qualified covered call options and optioned stock. Free 2011 taxes online Reporting requirements, How to report. Free 2011 taxes online Section 1256 contracts, Section 1256 Contracts Marked to Market, Section 1256 contract options. Free 2011 taxes online Wash sales, Options and futures contracts. Free 2011 taxes online Ordinary gains and losses, Capital or Ordinary Gain or Loss, Ordinary loss or casualty loss. Free 2011 taxes online Original issue discount (OID), Original issue discount. Free 2011 taxes online , Original Issue Discount (OID), Stripped tax-exempt obligations. Free 2011 taxes online , Original issue discount (OID) on debt instruments. Free 2011 taxes online Adjustment to, Original issue discount (OID) adjustment. Free 2011 taxes online Reporting requirements, Exceptions to reporting OID. Free 2011 taxes online , Form 1099-OID Rules, Applying the OID Rules P Pass-through entities Rollover of gain, Pass-through entity. Free 2011 taxes online Passive activities Gains and losses, Passive activity losses. Free 2011 taxes online , Passive activity losses. Free 2011 taxes online , Passive activity losses and credits. Free 2011 taxes online , Losses from passive activities. Free 2011 taxes online , Passive activity gains and losses. Free 2011 taxes online Patronage dividends, Patronage dividends. Free 2011 taxes online Penalties Accuracy-related, Accuracy-related penalty. Free 2011 taxes online , Accuracy-related penalties. Free 2011 taxes online Backup withholding, Penalties. Free 2011 taxes online Civil fraud, Civil fraud penalty. Free 2011 taxes online Early withdrawal, Interest subject to penalty for early withdrawal. Free 2011 taxes online , Penalty on early withdrawal of savings. Free 2011 taxes online Failure to pay tax, Failure to pay tax. Free 2011 taxes online Failure to supply SSN, Penalty for failure to supply SSN. Free 2011 taxes online Substantial understatement, Substantial understatement of tax. Free 2011 taxes online Valuation misstatement, Substantial valuation misstatement. Free 2011 taxes online Political parties Debts owed by, Debts owed by political parties. Free 2011 taxes online Preferred stock Nonqualified, Nonqualified preferred stock. Free 2011 taxes online Redeemable at a premium, Preferred stock redeemable at a premium. Free 2011 taxes online Stripped, Stripped Preferred Stock Premiums on bonds, Bond premium. Free 2011 taxes online , Premiums on bonds. Free 2011 taxes online Private activity bonds, Private activity bonds. Free 2011 taxes online Public utility stock reinvestment, Public utilities. Free 2011 taxes online Publications (see Tax help) Puts and calls, Puts and Calls Table 4-3, Table 4-3. Free 2011 taxes online Puts and Calls Q Qualified dividends, Qualified dividends. Free 2011 taxes online Qualified small business stock, Qualified small business stock. Free 2011 taxes online , Qualified small business stock. Free 2011 taxes online , Gains on Qualified Small Business Stock Gains on, Gains on Qualified Small Business Stock R Real estate investment trusts (REITs), Undistributed capital gains of mutual funds and REITs. Free 2011 taxes online , Shares in a mutual fund or REIT. Free 2011 taxes online , Loss on mutual fund or REIT stock held 6 months or less. Free 2011 taxes online Real estate mortgage investment conduits (REMICs), REMICs, Expenses. Free 2011 taxes online , Including mutual fund or REMIC expenses in income. Free 2011 taxes online Regular interest, Regular Interest Residual interest, Residual Interest, Residual interests in a REMIC. Free 2011 taxes online Recordkeeping requirements Education Savings Bond Program, Education Savings Bond Program Investment income, General Information Small business stock, Losses on Section 1244 (Small Business) Stock Redemption of stock, Redemption of stock. Free 2011 taxes online Redemption or retirement of bonds, Redemption or retirement of bonds. Free 2011 taxes online Regulated futures contract, Regulated futures contract. Free 2011 taxes online Reinvestment rights, Commissions and load charges. Free 2011 taxes online REITs (see Real estate investment trusts (REITs)) Related party transactions, Unpaid expenses owed to related party. Free 2011 taxes online , Related Party Transactions, Property received from a related party. Free 2011 taxes online Related persons, Related persons. Free 2011 taxes online REMICs (see Real estate mortgage investment conduits (REMICs)) Reorganizations, corporate, Corporate reorganizations. Free 2011 taxes online Reporting requirements Bad debts, How to report bad debts. Free 2011 taxes online Bond premium amortization, How To Report Amortization Capital gains and losses, How To Report Gains and Losses (Form 6781), How to report gain. Free 2011 taxes online , Reporting Capital Gains and Losses Dividend income, How To Report Dividend Income Exempt-interest dividends, Information reporting requirement. Free 2011 taxes online Interest on U. Free 2011 taxes online S. Free 2011 taxes online savings bonds, Reporting options for cash method taxpayers. Free 2011 taxes online , Choice to report interest each year. Free 2011 taxes online Investment expenses, How To Report Investment Expenses Like-kind exchanges, How to report. Free 2011 taxes online Options, How to report. Free 2011 taxes online Original issue discount, Form 1099-OID S corporation income, deductions, and credits, Reporting S corporation income, deductions, and credits. Free 2011 taxes online Section 1256 contracts, How To Report State or local government obligations, Information reporting requirement. Free 2011 taxes online Straddles, Section 1256 contracts and straddles. Free 2011 taxes online Substitute payments, Reporting Substitute Payments Tax-exempt interest income, Reporting tax-exempt interest. Free 2011 taxes online Trades, How To Report Repossession of real property, Real property repossessed. Free 2011 taxes online Restricted property, Restricted property. Free 2011 taxes online Restricted stock, Dividends received on restricted stock. Free 2011 taxes online Retirement of debt instrument, Retirement of debt instrument. Free 2011 taxes online Return of capital (see Nondividend distributions) Revocable trust, trustee's commissions for, Trustee's commissions for revocable trust. Free 2011 taxes online Rollover of gain from sale Securities, Rollover of Gain From Publicly Traded Securities, Rollover of Gain S S corporations, S Corporations, S corporation stock. Free 2011 taxes online Safe deposit box, Safe deposit box rent. Free 2011 taxes online Sales and trades of investment property, Sales and Trades of Investment Property Definition, What Is a Sale or Trade? Savings bonds (see U. Free 2011 taxes online S. Free 2011 taxes online savings bonds) SBIC stock (see Small business investment company stock) Scrip dividends, Scrip dividends. Free 2011 taxes online Section 1202 gain, Section 1202 Exclusion, Gain on qualified small business stock. Free 2011 taxes online Section 1244 stock, Losses on Section 1244 (Small Business) Stock Section 1250 gain, Unrecaptured section 1250 gain. Free 2011 taxes online Section 1256 contracts, Section 1256 Contracts Marked to Market, Section 1256 contracts. Free 2011 taxes online , Section 1256 contract options. Free 2011 taxes online , Section 1256 contracts and straddles. Free 2011 taxes online Net gain on, Net section 1256 contracts gain. Free 2011 taxes online Net loss on, Net section 1256 contracts loss. Free 2011 taxes online Reporting requirements, How To Report Securities Holding period, Holding Period Installment sales, Installment sales. Free 2011 taxes online Lost, stolen, etc. Free 2011 taxes online , cost of replacing, Cost of replacing missing securities. Free 2011 taxes online Rollover of gain from sale, Rollover of Gain From Publicly Traded Securities, Rollover of Gain Traders in, Special Rules for Traders in Securities Worthless, Worthless Securities, Worthless securities. Free 2011 taxes online Securities futures contracts, Dealer securities futures contract. Free 2011 taxes online , Securities futures contract. Free 2011 taxes online , Securities Futures Contracts Self-employment income, Self-Employment Income Self-employment tax, Self-employment tax. Free 2011 taxes online Seller-financed mortgages, Interest on seller-financed mortgage. Free 2011 taxes online Short sales, Short Sales, Extraordinary dividends. Free 2011 taxes online Adjusted basis, Short sales. Free 2011 taxes online Expenses of, Short-sale expenses. Free 2011 taxes online Extraordinary dividends, Extraordinary dividends. Free 2011 taxes online Puts, Put option as short sale. Free 2011 taxes online Small business investment company stock, Short sale. Free 2011 taxes online Short-term capital gains and losses, Short-Term or Long-Term Capital Gain or Loss, Short-term gains and losses. Free 2011 taxes online Short-term obligations, Discount on Short-Term Obligations, Choosing to include accrued discount and other interest in current income. Free 2011 taxes online , Acquisition discount on short-term obligations. Free 2011 taxes online , Short-term government obligations. Free 2011 taxes online Interest deduction, limit on, Limit on interest deduction for short-term obligations. Free 2011 taxes online Sixty/forty (60/40) rule, 60/40 rule. Free 2011 taxes online Small business investment company stock, Losses on Small Business Investment Company Stock, SSBIC stock. Free 2011 taxes online Reporting requirements, How to report. Free 2011 taxes online Small business stock, Qualified small business stock. Free 2011 taxes online , Losses on Section 1244 (Small Business) Stock, Qualified small business stock. Free 2011 taxes online , Gains on Qualified Small Business Stock Social security number (SSN) Custodial accounts, Custodian account for your child. Free 2011 taxes online Joint accounts, SSN for joint account. Free 2011 taxes online Requirement to give, Social security number (SSN). Free 2011 taxes online Specialized small business investment company stock, Specialized small business investment company stock or partnership interest. Free 2011 taxes online , SSBIC stock. Free 2011 taxes online Spouses Transfers between, Property Received From Your Spouse, Transfers Between Spouses (see also Related party transactions) State or local government obligations, State or Local Government Obligations, Taxable Interest Market discount bonds (see Market discount bonds) Private activity bonds, Private activity bonds. Free 2011 taxes online Registration requirement, Registration requirement. Free 2011 taxes online Tax-exempt interest, Tax-Exempt Interest Taxable interest, Taxable Interest Stock Basis, Basis adjustment. Free 2011 taxes online , Basis adjustment. Free 2011 taxes online , Basis. Free 2011 taxes online , Stocks and Bonds, Basis of replacement stock. Free 2011 taxes online Capital asset, Stocks, stock rights, and bonds. Free 2011 taxes online Constructive ownership, Constructive ownership of stock. Free 2011 taxes online Convertible, Convertible stocks and bonds. Free 2011 taxes online Corporate, Corporate Stocks Dividends (see Dividends) Fractional shares, Fractional shares. Free 2011 taxes online , Automatic investment service. Free 2011 taxes online Identification, Identifying stock or bonds sold. Free 2011 taxes online Installment sales, Installment sales. Free 2011 taxes online Nonqualified preferred stock, Nonqualified preferred stock. Free 2011 taxes online Options for employees, Reminders Public utility, reinvestment, Public utilities. Free 2011 taxes online Redemption of, Redemption of stock. Free 2011 taxes online Replacement stock, Basis of replacement stock. Free 2011 taxes online Restricted stock, Dividends received on restricted stock. Free 2011 taxes online Rights, Distributions of Stock and Stock Rights, Stock rights. Free 2011 taxes online , Nontaxable stock rights. Free 2011 taxes online S corporations, S corporation stock. Free 2011 taxes online Sales to ESOPs or cooperatives, Sales of Stock to ESOPs or Certain Cooperatives Small business, Qualified small business stock. Free 2011 taxes online , Qualified small business stock. Free 2011 taxes online Specialized small business investment company, Specialized small business investment company stock or partnership interest. Free 2011 taxes online Splits, Stock splits. Free 2011 taxes online Straddles (see Straddles) Stripped preferred stock, Stripped Preferred Stock Surrender of, Surrender of stock. Free 2011 taxes online Trades, Stock for stock of the same corporation. Free 2011 taxes online Trust instruments treated as, Certain trust instruments treated as stock. Free 2011 taxes online Straddles, Straddles, Interest expense and carrying charges relating to mixed straddle account positions. Free 2011 taxes online Holding period, Holding Period and Loss Treatment Rules Interest expense and carrying charges, Interest expense and carrying charges on straddles. Free 2011 taxes online Loss deferral rules, Loss Deferral Rules Mixed, Mixed straddles. Free 2011 taxes online , Mixed straddles. Free 2011 taxes online , Mixed Straddle Elections Reporting requirements, Section 1256 contracts and straddles. Free 2011 taxes online Stripped bonds and coupons, Stripped bonds or coupons. Free 2011 taxes online , Stripped Bonds and Coupons, Stripped tax-exempt obligation. Free 2011 taxes online Stripped preferred stock, Stripped Preferred Stock Substitute payments, Reporting Substitute Payments T Tables Capital gains maximum rate (Table 4-4), Table 4-4. Free 2011 taxes online What Is Your Maximum Capital Gain Rate? Income tax treaties (Table 1-3), Qualified Dividends Investment income, reporting of (Table 1-1), Table 1-1. Free 2011 taxes online Where To Report Common Types of Investment Income Puts and calls (Table 4-3), Table 4-3. Free 2011 taxes online Puts and Calls U. Free 2011 taxes online S. Free 2011 taxes online savings bonds, person responsible for tax (Table 1-2), Table 1-2. Free 2011 taxes online Who Pays the Tax on U. Free 2011 taxes online S. Free 2011 taxes online Savings Bond Interest Tax credit bonds, Tax credit bonds. Free 2011 taxes online Tax help, How To Get Tax Help Tax rates, What's New Capital gain and losses, Capital Gain Tax Rates Tax refunds Interest on, Interest on tax refunds. Free 2011 taxes online Tax shelters, Tax Shelters and Other Reportable Transactions, Whether To Invest Penalties, Penalties Reporting requirements, Investor Reporting Rules to curb abuse, Rules To Curb Abusive Tax Shelters Tax-exempt bonds, Tax-exempt state and local government bonds. Free 2011 taxes online Tax-exempt income Expenses of, Tax-exempt income. Free 2011 taxes online Interest, Tax-Exempt Interest, Reporting tax-exempt interest. Free 2011 taxes online Tax-exempt obligations, Tax-Exempt Interest, Stripped tax-exempt obligations. Free 2011 taxes online , Discounted tax-exempt obligations. Free 2011 taxes online Taxable income, expenses of, Expenses for both tax-exempt and taxable income. Free 2011 taxes online Taxes State and local transfer, State and local transfer taxes. Free 2011 taxes online State income, State income taxes. Free 2011 taxes online Term loans, Term loans. Free 2011 taxes online Trade or business, Passive activity. Free 2011 taxes online Traders in securities, Special Rules for Traders in Securities Trades Insurance, Insurance Policies and Annuities Investment property, Sales and Trades of Investment Property Like-kind, Like-Kind Exchanges, Like-Kind Exchanges Nontaxable, Property Received in Nontaxable Trades, Nontaxable Trades, Nontaxable trades. Free 2011 taxes online Reporting requirements, How To Report Stock, Stock for stock of the same corporation. Free 2011 taxes online Taxable, Property Received in Taxable Trades U. Free 2011 taxes online S. Free 2011 taxes online Treasury notes or bonds, U. Free 2011 taxes online S. Free 2011 taxes online Treasury Notes or Bonds Treasury bills, notes, and bonds (see U. Free 2011 taxes online S. Free 2011 taxes online Treasury bills, notes, and bonds) Treasury inflation-indexed securities, Inflation-Indexed Debt Instruments Treasury inflation-protected securities (TIPS), Treasury inflation-protected securities (TIPS). Free 2011 taxes online , Inflation-Indexed Debt Instruments Treaties, income tax (Table 1-3), Qualified Dividends Trust income received by beneficiary, Beneficiary of an estate or trust. Free 2011 taxes online Trustee's commission for revocable trust, Trustee's commissions for revocable trust. Free 2011 taxes online U U. Free 2011 taxes online S. Free 2011 taxes online savings bonds, U. Free 2011 taxes online S. Free 2011 taxes online obligations. Free 2011 taxes online , U. Free 2011 taxes online S. Free 2011 taxes online Savings Bonds Reporting interest on, U. Free 2011 taxes online S. Free 2011 taxes online obligations. Free 2011 taxes online , U. Free 2011 taxes online S. Free 2011 taxes online Savings Bonds Retirement or profit-sharing plan, distributed from, Savings bonds distributed from a retirement or profit-sharing plan. Free 2011 taxes online Worksheet, Worksheet for savings bonds distributed from a retirement or profit-sharing plan. Free 2011 taxes online Tax, responsible person (Table 1-2), Table 1-2. Free 2011 taxes online Who Pays the Tax on U. Free 2011 taxes online S. Free 2011 taxes online Savings Bond Interest U. Free 2011 taxes online S. Free 2011 taxes online Treasury bills, notes, and bonds, U. Free 2011 taxes online S. Free 2011 taxes online obligations. Free 2011 taxes online , U. Free 2011 taxes online S. Free 2011 taxes online Treasury Bills, Notes, and Bonds, U. Free 2011 taxes online S. Free 2011 taxes online Treasury Notes or Bonds, U. Free 2011 taxes online S. Free 2011 taxes online Treasury notes and bonds. Free 2011 taxes online Undistributed capital gains, Undistributed capital gains. Free 2011 taxes online Usurious interest, Usurious interest. Free 2011 taxes online V Veterans' insurance Dividends on, Dividends on veterans' insurance. Free 2011 taxes online W Warrants, Warrants. Free 2011 taxes online Wash sales, Wash Sales, Securities Futures Contracts Holding period, Wash sales. Free 2011 taxes online Loss deferral rules, straddles, Coordination of Loss Deferral Rules and Wash Sale Rules Withholding, backup, Backup withholding. Free 2011 taxes online Worksheets Capital loss carryover, Worksheet 4-1. Free 2011 taxes online Capital Loss Carryover Worksheet Worthless securities, Worthless Securities, Worthless securities. 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Free 2011 taxes online 10. Free 2011 taxes online   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. Free 2011 taxes online Revoking the election. Free 2011 taxes online More information. Free 2011 taxes online Figuring Installment Sale Income Payments Received or Considered Received ExampleSection 1231 gains. Free 2011 taxes online Summary. Free 2011 taxes online Introduction An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Free 2011 taxes online If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. Free 2011 taxes online This method of reporting gain is called the installment method. Free 2011 taxes online You cannot use the installment method to report a loss. Free 2011 taxes online You can choose to report all of your gain in the year of sale. Free 2011 taxes online Installment obligation. Free 2011 taxes online   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. Free 2011 taxes online 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. Free 2011 taxes online 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. Free 2011 taxes online It generally includes the sale of real property and personal property reportable on the installment method. Free 2011 taxes online It may also include the sale of property for which you must maintain an inventory, which cannot be reported on the installment method. Free 2011 taxes online See Inventory , later. Free 2011 taxes online The selling price must be allocated to determine the amount received for each class of asset. Free 2011 taxes online 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. Free 2011 taxes online (See chapter 8 for a discussion of capital assets and chapter 9 for a discussion of property used in the business. Free 2011 taxes online ) Separate computations must be made to figure the gain or loss for each class of asset sold. Free 2011 taxes online See Sale of a Farm in chapter 8. Free 2011 taxes online 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. Free 2011 taxes online See Depreciation recapture , later. Free 2011 taxes online This applies even if no payments are received in that year. Free 2011 taxes online Installment Method An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Free 2011 taxes online 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. Free 2011 taxes online See Inventory , later, for information on the sale of farm property where inventory items are included in the assets sold. Free 2011 taxes online 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. Free 2011 taxes online Electing out of the installment method. Free 2011 taxes online   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. Free 2011 taxes online   To make this election, do not report your sale on Form 6252. Free 2011 taxes online Instead, report it on Schedule D (Form 1040), Form 4797, or both. Free 2011 taxes online When to elect out. Free 2011 taxes online   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. Free 2011 taxes online   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). Free 2011 taxes online Write “Filed pursuant to section 301. Free 2011 taxes online 9100-2” at the top of the amended return and file it where the original return was filed. Free 2011 taxes online Revoking the election. Free 2011 taxes online   Once made, the election can be revoked only with IRS approval. Free 2011 taxes online A revocation is retroactive. Free 2011 taxes online More information. Free 2011 taxes online   See Electing Out of the Installment Method in Publication 537 for more information. Free 2011 taxes online Inventory. Free 2011 taxes online   The sale of farm inventory items cannot be reported on the installment method. Free 2011 taxes online All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. Free 2011 taxes online   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. Free 2011 taxes online If you do not, each payment must be allocated between the inventory and the other assets sold. Free 2011 taxes online Sale at a loss. Free 2011 taxes online   If your sale results in a loss, you cannot use the installment method. Free 2011 taxes online If the loss is on an installment sale of business assets, you can deduct it only in the tax year of sale. Free 2011 taxes online Figuring Installment Sale Income Each payment on an installment sale usually consists of the following three parts. Free 2011 taxes online Interest income. Free 2011 taxes online Return of your adjusted basis in the property. Free 2011 taxes online Gain on the sale. Free 2011 taxes online 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. Free 2011 taxes online You do not include in income the part that is the return of your basis in the property. Free 2011 taxes online Basis is the amount of your investment in the property for installment sale purposes. Free 2011 taxes online Interest income. Free 2011 taxes online   You must report interest as ordinary income. Free 2011 taxes online Interest is generally not included in a down payment. Free 2011 taxes online 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. Free 2011 taxes online Interest provided in the agreement is called stated interest. Free 2011 taxes online If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. Free 2011 taxes online See Unstated interest , later. Free 2011 taxes online    You must continue to report the interest income on payments you receive in subsequent years as interest income. Free 2011 taxes online Adjusted basis and installment sale income (gain on sale). Free 2011 taxes online   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. Free 2011 taxes online A tax-free return of your adjusted basis in the property, and Your gain (referred to as “installment sale income” on Form 6252). Free 2011 taxes online Figuring adjusted basis for installment sale purposes. Free 2011 taxes online   You can use Worksheet 10-1 to figure your adjusted basis in the property for installment sale purposes. Free 2011 taxes online 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. Free 2011 taxes online    Worksheet 10-1. Free 2011 taxes online Figuring Adjusted Basis and Gross Profit Percentage 1. Free 2011 taxes online Enter the selling price for the property   2. Free 2011 taxes online Enter your adjusted basis for the property     3. Free 2011 taxes online Enter your selling expenses     4. Free 2011 taxes online Enter any depreciation recapture     5. Free 2011 taxes online Add lines 2, 3, and 4. Free 2011 taxes online  This is your adjusted basis  for installment sale purposes   6. Free 2011 taxes online Subtract line 5 from line 1. Free 2011 taxes online If zero or less, enter -0-. Free 2011 taxes online  This is your gross profit     If the amount entered on line 6 is zero, Stop here. Free 2011 taxes online You cannot use the installment method. Free 2011 taxes online   7. Free 2011 taxes online Enter the contract price for the property   8. Free 2011 taxes online Divide line 6 by line 7. Free 2011 taxes online This is your gross profit percentage   Selling price. Free 2011 taxes online   The selling price is the total cost of the property to the buyer and includes the following. Free 2011 taxes online Any money you are to receive. Free 2011 taxes online 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 ). Free 2011 taxes online 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). Free 2011 taxes online Any of your selling expenses the buyer pays. Free 2011 taxes online Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. Free 2011 taxes online Adjusted basis for installment sale purposes. Free 2011 taxes online   Your adjusted basis is the total of the following three items. Free 2011 taxes online Adjusted basis. Free 2011 taxes online Selling expenses. Free 2011 taxes online Depreciation recapture. Free 2011 taxes online Adjusted basis. Free 2011 taxes online   Basis is your investment in the property for installment sale purposes. Free 2011 taxes online The way you figure basis depends on how you acquire the property. Free 2011 taxes online The basis of property you buy is generally its cost. Free 2011 taxes online The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. Free 2011 taxes online   While you own property, various events may change your original basis. Free 2011 taxes online Some events, such as adding rooms or making permanent improvements, increase basis. Free 2011 taxes online Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. Free 2011 taxes online The result is adjusted basis. Free 2011 taxes online See chapter 6 and Publication 551, Basis of Assets, for more information. Free 2011 taxes online Selling expenses. Free 2011 taxes online   Selling expenses relate to the sale of the property. Free 2011 taxes online They include commissions, attorney fees, and any other expenses paid on the sale. Free 2011 taxes online Selling expenses are added to the basis of the sold property. Free 2011 taxes online Depreciation recapture. Free 2011 taxes online   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. Free 2011 taxes online See Depreciation Recapture in chapter 9 and Depreciation Recapture Income in Publication 537. Free 2011 taxes online Gross profit. Free 2011 taxes online   Gross profit is the total gain you report on the installment method. Free 2011 taxes online   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. Free 2011 taxes online If the property you sold was your home, subtract from the gross profit any gain you can exclude. Free 2011 taxes online Contract price. Free 2011 taxes online   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. Free 2011 taxes online Gross profit percentage. Free 2011 taxes online   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. Free 2011 taxes online This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. Free 2011 taxes online   The gross profit percentage generally remains the same for each payment you receive. Free 2011 taxes online However, see the example under Selling price reduced , later, for a situation where the gross profit percentage changes. Free 2011 taxes online Amount to report as installment sale income. Free 2011 taxes online   Multiply the payments you receive each year (less interest) by the gross profit percentage. Free 2011 taxes online The result is your installment sales income for the tax year. Free 2011 taxes online In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. Free 2011 taxes online A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. Free 2011 taxes online For a detailed discussion, see Payments Received or Considered Received , later. Free 2011 taxes online Selling price reduced. Free 2011 taxes online   If the selling price is reduced at a later date, the gross profit on the sale also will change. Free 2011 taxes online You then must refigure the gross profit percentage for the remaining payments. Free 2011 taxes online Refigure your gross profit using Worksheet 10-2. Free 2011 taxes online New Gross Profit Percentage — Selling Price Reduced. Free 2011 taxes online You will spread any remaining gain over future installments. Free 2011 taxes online    Worksheet 10-2. Free 2011 taxes online New Gross Profit Percentage — Selling Price Reduced 1. Free 2011 taxes online Enter the reduced selling  price for the property   2. Free 2011 taxes online Enter your adjusted  basis for the  property     3. Free 2011 taxes online Enter your selling  expenses     4. Free 2011 taxes online Enter any depreciation  recapture     5. Free 2011 taxes online Add lines 2, 3, and 4. Free 2011 taxes online   6. Free 2011 taxes online Subtract line 5 from line 1. Free 2011 taxes online  This is your adjusted  gross profit   7. Free 2011 taxes online Enter any installment sale  income reported in  prior year(s)   8. Free 2011 taxes online Subtract line 7 from line 6   9. Free 2011 taxes online Future installments     10. Free 2011 taxes online Divide line 8 by line 9. Free 2011 taxes online  This is your new  gross profit percentage*. Free 2011 taxes online   * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Free 2011 taxes online Example. Free 2011 taxes online In 2011, you sold land with a basis of $40,000 for $100,000. Free 2011 taxes online Your gross profit was $60,000. Free 2011 taxes online You received a $20,000 down payment and the buyer's note for $80,000. Free 2011 taxes online The note provides for monthly payments of $1,953 each, figured at 8% interest, amortized over four years, beginning in January 2012. Free 2011 taxes online Your gross profit percentage was 60%. Free 2011 taxes online 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. Free 2011 taxes online You reported a gain of $12,000 on the down payment received in 2011 and $10,605 ($17,675 X 60% (. Free 2011 taxes online 60)) in 2012. Free 2011 taxes online 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. Free 2011 taxes online The new gross profit percentage, 47. Free 2011 taxes online 32%, is figured in Example — Worksheet 10-2. Free 2011 taxes online Example — Worksheet 10-2. Free 2011 taxes online New Gross Profit Percentage — Selling Price Reduced 1. Free 2011 taxes online Enter the reduced selling  price for the property 85,000 2. Free 2011 taxes online Enter your adjusted  basis for the  property 40,000   3. Free 2011 taxes online Enter your selling  expenses -0-   4. Free 2011 taxes online Enter any depreciation  recapture -0-   5. Free 2011 taxes online Add lines 2, 3, and 4. Free 2011 taxes online 40,000 6. Free 2011 taxes online Subtract line 5 from line 1. Free 2011 taxes online  This is your adjusted  gross profit 45,000 7. Free 2011 taxes online Enter any installment sale  income reported in  prior year(s) 22,605 8. Free 2011 taxes online Subtract line 7 from line 6 22,395 9. Free 2011 taxes online Future installments   47,325 10. Free 2011 taxes online Divide line 8 by line 9. Free 2011 taxes online  This is your new  gross profit percentage*. Free 2011 taxes online 47. Free 2011 taxes online 32% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Free 2011 taxes online You will report installment sale income of $6,878 (47. Free 2011 taxes online 32% of $14,535) in 2013, $7,449 (47. Free 2011 taxes online 32% of $15,742) in 2014, and $8,067 (47. Free 2011 taxes online 32% of $17,048) in 2015. Free 2011 taxes online Form 6252. Free 2011 taxes online   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. Free 2011 taxes online Attach it to your tax return for each year. Free 2011 taxes online 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. Free 2011 taxes online It is considered gain or loss on the sale of the property for which you received the installment obligation. Free 2011 taxes online Cancellation. Free 2011 taxes online   If an installment obligation is canceled or otherwise becomes unenforceable, it is treated as a disposition other than a sale or exchange. Free 2011 taxes online 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. Free 2011 taxes online If the parties are related, the FMV of the obligation is considered to be no less than its full face value. Free 2011 taxes online Transfer due to death. Free 2011 taxes online   The transfer of an installment obligation (other than to a buyer) as a result of the death of the seller is not a disposition. Free 2011 taxes online Any unreported gain from the installment obligation is not treated as gross income to the decedent. Free 2011 taxes online No income is reported on the decedent's return due to the transfer. Free 2011 taxes online 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. Free 2011 taxes online   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. Free 2011 taxes online The estate must figure its gain or loss on the disposition. Free 2011 taxes online 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. Free 2011 taxes online More information. Free 2011 taxes online   For more information on the disposition of an installment obligation, see Publication 537. Free 2011 taxes online Sale of depreciable property. Free 2011 taxes online   You generally cannot report gain from the sale of depreciable property to a related person on the installment method. Free 2011 taxes online See Sale to a Related Person in Publication 537. Free 2011 taxes online   You cannot use the installment method to report any depreciation recapture income up to the gain on the sale. Free 2011 taxes online However, report any gain greater than the recapture income on the installment method. Free 2011 taxes online   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. Free 2011 taxes online   Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. Free 2011 taxes online Report the depreciation recapture income in Part II of Form 4797 as ordinary income in the year of sale. Free 2011 taxes online    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. Free 2011 taxes online See the Form 6252 instructions for details. Free 2011 taxes online   For more information on the section 179 deduction, see Section 179 Expense Deduction in chapter 7. Free 2011 taxes online For more information on depreciation recapture, see Depreciation Recapture in  chapter 9. Free 2011 taxes online 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. Free 2011 taxes online In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. Free 2011 taxes online 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. Free 2011 taxes online 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. Free 2011 taxes online Buyer pays seller's expenses. Free 2011 taxes online   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. Free 2011 taxes online Include these expenses in the selling and contract prices when figuring the gross profit percentage. Free 2011 taxes online Buyer assumes mortgage. Free 2011 taxes online   If the buyer assumes or pays off your mortgage, or otherwise takes the property subject to the mortgage, the following rules apply. Free 2011 taxes online Mortgage less than basis. Free 2011 taxes online   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. Free 2011 taxes online It is considered a recovery of your basis. Free 2011 taxes online The contract price is the selling price minus the mortgage. Free 2011 taxes online Example. Free 2011 taxes online You sell property with an adjusted basis of $19,000. Free 2011 taxes online You have selling expenses of $1,000. Free 2011 taxes online 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). Free 2011 taxes online The selling price is $25,000 ($15,000 + $10,000). Free 2011 taxes online Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). Free 2011 taxes online The contract price is $10,000 ($25,000 − $15,000 mortgage). Free 2011 taxes online Your gross profit percentage is 50% ($5,000 ÷ $10,000). Free 2011 taxes online You report half of each $2,000 payment received as gain from the sale. Free 2011 taxes online You also report all interest you receive as ordinary income. Free 2011 taxes online Mortgage more than basis. Free 2011 taxes online   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. Free 2011 taxes online The part of the mortgage greater than your basis is treated as a payment received in the year of sale. Free 2011 taxes online   To figure the contract price, subtract the mortgage from the selling price. Free 2011 taxes online This is the total amount (other than interest) you will receive directly from the buyer. Free 2011 taxes online Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). Free 2011 taxes online The contract price is then the same as your gross profit from the sale. Free 2011 taxes online    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. Free 2011 taxes online Example. Free 2011 taxes online The selling price for your property is $9,000. Free 2011 taxes online The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. Free 2011 taxes online Your adjusted basis in the property is $4,400. Free 2011 taxes online You have selling expenses of $600, for a total installment sale basis of $5,000. Free 2011 taxes online The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). Free 2011 taxes online This amount is included in the contract price and treated as a payment received in the year of sale. Free 2011 taxes online 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%. Free 2011 taxes online Report 100% of each payment (less interest) as gain from the sale. Free 2011 taxes online 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. Free 2011 taxes online Buyer assumes other debts. Free 2011 taxes online   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. Free 2011 taxes online   If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. Free 2011 taxes online Compare the debt to your installment sale basis in the property being sold. Free 2011 taxes online If the debt is less than your installment sale basis, none of it is treated as a payment. Free 2011 taxes online If it is more, only the difference is treated as a payment. Free 2011 taxes online 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. Free 2011 taxes online These rules are the same as the rules discussed earlier under Buyer assumes mortgage . Free 2011 taxes online However, they apply only to the following types of debt the buyer assumes. Free 2011 taxes online Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. Free 2011 taxes online Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. Free 2011 taxes online   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. Free 2011 taxes online The value of the assumed debt is then considered a payment to you in the year of sale. Free 2011 taxes online Property used as a payment. Free 2011 taxes online   If you receive property rather than money from the buyer, it is still considered a payment in the year received. Free 2011 taxes online However, see Trading property for like-kind property , later. Free 2011 taxes online Generally, the amount of the payment is the property's FMV on the date you receive it. Free 2011 taxes online Exception. Free 2011 taxes online   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. Free 2011 taxes online See Unstated interest , later. Free 2011 taxes online Examples. Free 2011 taxes online 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. Free 2011 taxes online 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. Free 2011 taxes online In these examples, use the above rules to determine the amount you should consider as payment in the year received. Free 2011 taxes online Debt not payable on demand. Free 2011 taxes online   Any evidence of debt you receive from the buyer that is not payable on demand is not considered a payment. Free 2011 taxes online This is true even if the debt is guaranteed by a third party, including a government agency. Free 2011 taxes online Fair market value (FMV). Free 2011 taxes online   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. Free 2011 taxes online Third-party note. Free 2011 taxes online   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. Free 2011 taxes online 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. Free 2011 taxes online The excess of the note's face value over its FMV is interest. Free 2011 taxes online Exclude this interest in determining the selling price of the property. Free 2011 taxes online However, see Exception under Property used as a payment , earlier. Free 2011 taxes online Example. Free 2011 taxes online You sold real estate in an installment sale. Free 2011 taxes online As part of the down payment, the buyer assigned to you a $50,000, 8% third-party note. Free 2011 taxes online The FMV of the third-party note at the time of the sale was $30,000. Free 2011 taxes online This amount, not $50,000, is a payment to you in the year of sale. Free 2011 taxes online 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. Free 2011 taxes online The remaining 40% is interest taxed as ordinary income. Free 2011 taxes online Bond. Free 2011 taxes online   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. Free 2011 taxes online For more information on the amount you should treat as a payment, see Exception under Property used as a payment , earlier. Free 2011 taxes online   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. Free 2011 taxes online However, see Exception under Property used as a payment , earlier. Free 2011 taxes online Buyer's note. Free 2011 taxes online   The buyer's note (unless payable on demand) is not considered payment on the sale. Free 2011 taxes online However, its full face value is included when figuring the selling price and the contract price. Free 2011 taxes online Payments you receive on the note are used to figure your gain in the year received. Free 2011 taxes online Sale to a related person. Free 2011 taxes online   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. Free 2011 taxes online For information on these rules, see the Instructions for Form 6252 and Sale to a Related Person in Publication 537. Free 2011 taxes online Trading property for like-kind property. Free 2011 taxes online   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. Free 2011 taxes online See Like-Kind Exchanges in chapter 8 for a discussion of like-kind property. Free 2011 taxes online   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. Free 2011 taxes online The contract price is reduced by the FMV of the like-kind property received in the trade. Free 2011 taxes online The gross profit is reduced by any gain on the trade that can be postponed. Free 2011 taxes online Like-kind property received in the trade is not considered payment on the installment obligation. Free 2011 taxes online Unstated interest. Free 2011 taxes online   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. Free 2011 taxes online Interest provided in the contract is called stated interest. Free 2011 taxes online   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. Free 2011 taxes online If Internal Revenue Code section 483 applies to the contract, this interest is called unstated interest. Free 2011 taxes online   If Internal Revenue Code section 1274 applies to the contract, this interest is called original issue discount (OID). Free 2011 taxes online   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. Free 2011 taxes online Therefore, the buyer cannot deduct the unstated interest. Free 2011 taxes online The seller must report the unstated interest as income. Free 2011 taxes online 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. Free 2011 taxes online   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. Free 2011 taxes online   Unstated interest reduces the stated selling price of the property and the buyer's basis in the property. Free 2011 taxes online It increases the seller's interest income and the buyer's interest expense. Free 2011 taxes online   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). Free 2011 taxes online    The AFRs are published monthly in the Internal Revenue Bulletin (IRB). Free 2011 taxes online You can get this information by contacting an IRS office. Free 2011 taxes online IRBs are also available at IRS. Free 2011 taxes online gov. Free 2011 taxes online More information. Free 2011 taxes online   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Free 2011 taxes online Example. Free 2011 taxes online You sell property at a contract price of $6,000 and your gross profit is $1,500. Free 2011 taxes online Your gross profit percentage is 25% ($1,500 ÷ $6,000). Free 2011 taxes online 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. Free 2011 taxes online The remainder (balance) of each payment is the tax-free return of your adjusted basis. Free 2011 taxes online Example On January 3, 2013, you sold your farm, including the home, farm land and buildings. Free 2011 taxes online You received $50,000 down and the buyer's note for $200,000. Free 2011 taxes online In addition, the buyer assumed an outstanding $50,000 mortgage on the farm land. Free 2011 taxes online The total selling price was $300,000. Free 2011 taxes online The note payments of $25,000 each, plus adequate interest, are due every July 1 and January 1, beginning in July 2013. Free 2011 taxes online Your selling expenses were $15,000. Free 2011 taxes online Adjusted basis and depreciation. Free 2011 taxes online   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. Free 2011 taxes online   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. Free 2011 taxes online The selling expense for each asset is 5% of the selling price ($15,000 selling expense ÷ $300,000 selling price). Free 2011 taxes online   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. Free 2011 taxes online   The buildings are section 1250 property. Free 2011 taxes online There is no depreciation recapture income for them because they were depreciated using the straight line method. Free 2011 taxes online See chapter 9 for more information on depreciation recapture. Free 2011 taxes online   Special rules may apply when you sell section 1250 assets depreciated under the straight line method. Free 2011 taxes online See the Unrecaptured Section 1250 Gain Worksheet in the Instructions for Schedule D (Form 1040). Free 2011 taxes online See chapter 3 of Publication 544, Sales and Other Dispositions of Assets, for more information on section 1250 assets. Free 2011 taxes online Installment sale basis and gross profit. Free 2011 taxes online   The following table shows each asset reported on the installment method, its selling price, installment sale basis, and gross profit. Free 2011 taxes online     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. Free 2011 taxes online   The gain on the farm land and buildings is reported as section 1231 gains. Free 2011 taxes online See Section 1231 Gains and Losses in chapter 9. Free 2011 taxes online Contract price and gross profit percentage. Free 2011 taxes online   The contract price is $250,000 for the part of the sale reported on the installment method. Free 2011 taxes online This is the selling price ($300,000) minus the mortgage assumed ($50,000). Free 2011 taxes online   Gross profit percentage for the sale is 47. Free 2011 taxes online 70% ($119,260 gross profit ÷ $250,000 contract price). Free 2011 taxes online The gross profit percentage for each asset is figured as follows:   Percent Farm land ($83,140 ÷ $250,000) 33. Free 2011 taxes online 256 Buildings ($36,120 ÷ $250,000) 14. Free 2011 taxes online 448 Total 47. Free 2011 taxes online 70 Figuring the gain to report on the installment method. Free 2011 taxes online   One hundred percent (100%) of each payment is reported on the installment method. Free 2011 taxes online The total amount received on the sale in 2013 is $75,000 ($50,000 down payment + $25,000 payment on July 1). Free 2011 taxes online The installment sale part of the total payments received in 2013 is also $75,000. Free 2011 taxes online Figure the gain to report for each asset by multiplying its gross profit percentage times $75,000. Free 2011 taxes online   Income Farm land—33. Free 2011 taxes online 256% × $75,000 $24,942 Buildings—14. Free 2011 taxes online 448% × $75,000 10,836 Total installment income for 2013 $35,778 Reporting the sale. Free 2011 taxes online   Report the installment sale on Form 6252. Free 2011 taxes online Then report the amounts from Form 6252 on Form 4797 and Schedule D (Form 1040). Free 2011 taxes online Attach a separate page to Form 6252 that shows the computations in the example. Free 2011 taxes online 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. Free 2011 taxes online Section 1231 gains. Free 2011 taxes online   The gains on the farm land and buildings are section 1231 gains. Free 2011 taxes online They may be reported as either capital or ordinary gain depending on the net balance when combined with other section 1231 losses. Free 2011 taxes online A net 1231 gain is capital gain and a net 1231 loss is an ordinary loss. Free 2011 taxes online Installment income for years after 2013. Free 2011 taxes online   You figure installment income for the years after 2013 by applying the same gross profit percentages to the payments you receive each year. Free 2011 taxes online If you receive $50,000 during the year, the entire $50,000 is considered received on the installment sale (100% × $50,000). Free 2011 taxes online You realize income as follows:   Income Farm land—33. Free 2011 taxes online 256% × $50,000 $16,628 Buildings—14. Free 2011 taxes online 448% × $50,000 7,224 Total installment income $23,852   In this example, no gain ever is recognized from the sale of your home. Free 2011 taxes online 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. Free 2011 taxes online The interest received with each payment will be included in full as ordinary income. Free 2011 taxes online Summary. Free 2011 taxes online   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. Free 2011 taxes online 70% 23,850 Gain reported in 2014:   $50,000 × 47. Free 2011 taxes online 70% 23,850 Gain reported in 2015:   $50,000 × 47. Free 2011 taxes online 70% 23,850 Gain reported in 2016:   $25,000 × 47. Free 2011 taxes online 70% 11,925 Total gain reported $119,253 Prev  Up  Next   Home   More Online Publications