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Free State Income Tax E File

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Free State Income Tax E File

Free state income tax e file 1. Free state income tax e file   Canceled Debts Table of Contents General RulesForm 1099-C Discounts and loan modifications Sales or other dispositions (such as foreclosures and repossessions) Abandonments Stockholder debt This chapter discusses the tax treatment of canceled debts. Free state income tax e file General Rules Generally, if a debt for which you are personally liable is forgiven or discharged for less than the full amount owed, the debt is considered canceled in whatever amount it remained unpaid. Free state income tax e file There are exceptions to this rule, discussed under Exceptions , later. Free state income tax e file Generally, you must include the canceled debt in your income. Free state income tax e file However, you may be able to exclude the canceled debt. Free state income tax e file See Exclusions , later. Free state income tax e file Example. Free state income tax e file John owed $1,000 to Mary. Free state income tax e file Mary agreed to accept and John paid $400 in satisfaction of the entire debt. Free state income tax e file John has canceled debt of $600. Free state income tax e file Example. Free state income tax e file Margaret owed $1,000 to Henry. Free state income tax e file Henry and Margaret agreed that Margaret would provide Henry with services (instead of money) in full satisfaction of the debt. Free state income tax e file Margaret does not have canceled debt. Free state income tax e file Instead, she has income from services. Free state income tax e file A debt includes any indebtedness: For which you are liable, or Subject to which you hold property. Free state income tax e file Debt for which you are personally liable is recourse debt. Free state income tax e file All other debt is nonrecourse debt. Free state income tax e file If you are not personally liable for the debt, you do not have ordinary income from the cancellation of debt unless you retain the collateral and either: The lender offers a discount for the early payment of the debt, or The lender agrees to a loan modification that results in the reduction of the principal balance of the debt. Free state income tax e file See Discounts and loan modifications , later. Free state income tax e file However, upon the disposition of the property securing a nonrecourse debt, the amount realized includes the entire unpaid amount of the debt, not just the FMV of the property. Free state income tax e file As a result, you may realize a gain or loss if the outstanding debt immediately before the disposition is more or less than your adjusted basis in the property. Free state income tax e file For more details on figuring your gain or loss, see chapter 2 of this publication or see Publication 544. Free state income tax e file There are several exceptions and exclusions that may result in part or all of a canceled debt being nontaxable. Free state income tax e file See Exceptions and Exclusions, later. Free state income tax e file You must report any taxable canceled debt as ordinary income on: Form 1040 or Form 1040NR, line 21, if the debt is a nonbusiness debt; Schedule C (Form 1040), line 6 (or Schedule C-EZ (Form 1040), line 1), if the debt is related to a nonfarm sole proprietorship; Schedule E (Form 1040), line 3, if the debt is related to nonfarm rental of real property; Form 4835, line 6, if the debt is related to a farm rental activity for which you use Form 4835 to report farm rental income based on crops or livestock produced by a tenant; or Schedule F (Form 1040), line 8, if the debt is farm debt and you are a farmer. Free state income tax e file Form 1099-C If you receive a Form 1099-C, that means an applicable entity has reported an identifiable event to the IRS regarding a debt you owe. Free state income tax e file The identifiable event may be an actual cancellation of the debt or it may be an event the applicable entity is required, solely for purposes of reporting to the IRS, to treat as a cancellation of debt. Free state income tax e file For information on the reasons an applicable entity files Form 1099-C, see Identifiable event codes, later. Free state income tax e file Unless you meet one of the exceptions or exclusions discussed later, this canceled debt is ordinary income and must be reported on the appropriate form discussed above. Free state income tax e file An applicable entity includes: A federal government agency, A financial institution, A credit union, and Any organization a significant trade or business of which is lending money. Free state income tax e file Identifiable event codes. Free state income tax e file    Box 6 of Form 1099-C should indicate the reason the creditor filed this form. Free state income tax e file The codes shown in box 6 are explained below. Free state income tax e file Also see the chart after the explanation for a quick reference guide for the codes used in Box 6. Free state income tax e file Note. Free state income tax e file Codes A through G and I identify specific occurrences resulting from an actual discharge of indebtedness. Free state income tax e file However, Code H, Expiration of nonpayment testing period, does not necessarily identify an actual discharge of indebtedness. Free state income tax e file Code A — Bankruptcy. Free state income tax e file Code A is used to identify cancellation of debt as a result of a title 11 bankruptcy case. Free state income tax e file See Bankruptcy , later. Free state income tax e file Code B — Other judicial debt relief. Free state income tax e file Code B is used to identify cancellation of debt as a result of a receivership, foreclosure, or similar federal or state court proceeding other than bankruptcy. Free state income tax e file Code C — Statute of limitations or expiration of deficiency period. Free state income tax e file Code C is used to identify cancellation of debt either when the statute of limitations for collecting the debt expires or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Free state income tax e file In the case of the expiration of a statute of limitations, an identifiable event occurs only if and when your affirmative defense of the statute of limitations is upheld in a final judgment or decision in a judicial proceeding, and the period for appealing the judgment or decision has expired. Free state income tax e file Code D — Foreclosure election. Free state income tax e file Code D is used to identify cancellation of debt when the creditor elects foreclosure remedies that statutorily end or bar the creditor's right to pursue collection of the debt. Free state income tax e file This event applies to a mortgage lender or holder who is barred from pursuing debt collection after a power of sale in the mortgage or deed of trust is exercised. Free state income tax e file Code E — Debt relief from probate or similar proceeding. Free state income tax e file Code E is used to identify cancellation of debt as a result of a probate court or similar legal proceeding. Free state income tax e file Code F — By agreement. Free state income tax e file Code F is used to identify cancellation of debt as a result of an agreement between the creditor and the debtor to cancel the debt at less than full consideration. Free state income tax e file Code G — Decision or policy to discontinue collection. Free state income tax e file Code G is used to identify cancellation of debt as a result of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. Free state income tax e file For purposes of this identifiable event, a defined policy includes both a written policy and the creditor's established business practice. Free state income tax e file Code H — Expiration of nonpayment testing period. Free state income tax e file Code H is used to indicate that the creditor has not received a payment on the debt during a testing period ending on December 31, 2013. Free state income tax e file The testing period is a 36-month period increased by the number of months the creditor was prevented from engaging in collection activity by a stay in bankruptcy or similar bar under state or local law. Free state income tax e file This identifiable event applies only for a creditor that is a financial institution or credit union (and certain of their subsidiaries), the Federal Deposit Insurance Corporation (FDIC), Resolution Trust Corporation (RTC), National Credit Union Administration (NCUA), and other Federal executive agencies. Free state income tax e file Expiration of the nonpayment testing period does not necessarily result from an actual discharge of indebtedness. Free state income tax e file Code I — Other actual discharge before identifiable event. Free state income tax e file Code I is used to identify an actual cancellation of debt that occurs before any of the identifiable events described in codes A through H. Free state income tax e file Form 1099-C Reference Guide for Box 6 Identifiable Event Codes A Bankruptcy B Other judicial debt relief C Statute of limitations or expiration of deficiency period D Foreclosure election E Debt relief from probate or similar proceeding F By agreement G Decision or policy to discontinue collection H Expiration of nonpayment testing period I Other actual discharge before identifiable event Even if you did not receive a Form 1099-C, you must report canceled debt as gross income on your tax return unless one of the exceptions or exclusions described later applies. Free state income tax e file Amount of canceled debt. Free state income tax e file    The amount in box 2 of Form 1099-C may represent some or all of the debt that has been canceled or treated as canceled. Free state income tax e file The amount in box 2 will include principal and may include interest and other nonprincipal amounts (such as fees or penalties). Free state income tax e file Unless you meet one of the exceptions or exclusions discussed later, the amount of the debt that has been canceled is ordinary income and must be reported on the appropriate form as discussed earlier. Free state income tax e file Interest included in canceled debt. Free state income tax e file    If any interest is included in the amount of canceled debt in box 2, it will be shown in box 3. Free state income tax e file Whether the interest portion of the canceled debt must be included in your income depends on whether the interest would be deductible if you paid it. Free state income tax e file See Deductible Debt under Exceptions, later. Free state income tax e file Persons who each receive a Form 1099-C showing the full amount of debt. Free state income tax e file    If you and another person were jointly and severally liable for a canceled debt, each of you may get a Form 1099-C showing the entire amount of the canceled debt. Free state income tax e file However, you may not have to report that entire amount as income. Free state income tax e file The amount, if any, you must report depends on all the facts and circumstances, including: State law, The amount of debt proceeds each person received, How much of any interest deduction from the debt was claimed by each person, How much of the basis of any co-owned property bought with the debt proceeds was allocated to each co-owner, and Whether the canceled debt qualifies for any of the exceptions or exclusions described in this publication. Free state income tax e file See Example 3 under Insolvency, later. Free state income tax e file Discounts and loan modifications If a lender discounts (reduces) the principal balance of a loan because you pay it off early, or agrees to a loan modification (a “workout”) that includes a reduction in the principal balance of a loan, the amount of the discount or the amount of principal reduction is canceled debt. Free state income tax e file However, if the debt is nonrecourse and you did not retain the collateral, you do not have cancellation of the debt income. Free state income tax e file The amount of the canceled debt must be included in income unless one of the exceptions or exclusions described later applies. Free state income tax e file For more details, see Exceptions and Exclusions, later. Free state income tax e file Sales or other dispositions (such as foreclosures and repossessions) Recourse debt. Free state income tax e file   If you owned property that was subject to a recourse debt in excess of the FMV of the property, the lender's foreclosure or repossession of the property is treated as a sale or disposition of the property by you and may result in your realization of gain or loss. Free state income tax e file The gain or loss on the disposition of the property is measured by the difference between the FMV of the property at the time of the disposition and your adjusted basis (usually your cost) in the property. Free state income tax e file The character of the gain or loss (such as ordinary or capital) is determined by the character of the property. Free state income tax e file If the lender forgives all or part of the amount of the debt in excess of the FMV of the property, the cancellation of the excess debt may result in ordinary income. Free state income tax e file The ordinary income from the cancellation of debt (the excess of the canceled debt over the FMV of the property) must be included in your gross income reported on your tax return unless one of the exceptions or exclusions described later applies. Free state income tax e file For more details, see Exceptions and Exclusions, later. Free state income tax e file Nonrecourse debt. Free state income tax e file   If you owned property that was subject to a nonrecourse debt in excess of the FMV of the property, the lender's foreclosure on the property does not result in ordinary income from the cancellation of debt. Free state income tax e file The entire amount of the nonrecourse debt is treated as an amount realized on the disposition of the property. Free state income tax e file The gain or loss on the disposition of the property is measured by the difference between the total amount realized (the entire amount of the nonrecourse debt plus the amount of cash and the FMV of any property received) and your adjusted basis in the property. Free state income tax e file The character of the gain or loss is determined by the character of the property. Free state income tax e file More information. Free state income tax e file    See Publications 523, 544, and 551, and chapter 2 of this publication for more details. Free state income tax e file Abandonments Recourse debt. Free state income tax e file   If you abandon property that secures a debt for which you are personally liable (recourse debt) and the debt is canceled, you will realize ordinary income equal to the canceled debt. Free state income tax e file You must report this income on your tax return unless one of the exceptions or exclusions described later applies. Free state income tax e file For more details, see Exceptions and Exclusions, later. Free state income tax e file This income is separate from any amount realized from the abandonment of the property. Free state income tax e file For more details, see chapter 3. Free state income tax e file Nonrecourse debt. Free state income tax e file   If you abandon property that secures a debt for which you are not personally liable (nonrecourse debt), you may realize gain or loss but will not have cancellation of indebtedness income. Free state income tax e file Stockholder debt If you are a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution. Free state income tax e file For more information, see Publication 542, Corporations. Free state income tax e file Prev  Up  Next   Home   More Online Publications
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IRS - Issuing Refunds

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Every year, the IRS issues refunds to millions of taxpayers. Refund data are reported in multiple ways, including by the number issued and refund amounts. Historical refund data are also available from 1987 to 2007.

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Fiscal Year Data

The tables below were originally published in the IRS Data Book, which is IRS Publication 55B, and are complied by various divisions throughout the IRS. The IRS's fiscal year runs from October 1 to September 30.

Refunds Issued and Refund Amounts

Number of Internal Revenue Refunds Issued
The number of refunds issued are shown for selected returns, including corporation, individual, employment, estate, gift, and excise taxes, by state.

• Prior to 2000, the number of refunds for selected tax return types are classified by Internal Revenue region and district.

Fiscal Years available:
1999     1998     1997     1996     1995

 

Amount of Internal Revenue Refunds Issued, Including Interest
These tables show the total dollar amount refunded, by state and type of tax.

• Prior to 2000, the total dollar amounts refunded are shown by Internal Revenue region and district and by type of tax return. 

Fiscal Years available:
1999     1998     1997     1996     1995


Historical IRS Tax Refunds
Total dollar amounts refunded by quarter and fiscal year, by type of return.

SOI Bulletin Historical Table 19
Fiscal Years covered:  1987-2007




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The Free State Income Tax E File

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