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H&r Block State Taxes

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H&r Block State Taxes

H&r block state taxes Index A Accrual period, Accrual period. H&r block state taxes Acquisition premium, Acquisition premium. H&r block state taxes Adjusted issue price, Adjusted issue price. H&r block state taxes Assistance (see Tax help) B Backup withholding, Backup Withholding Bearer bonds and coupons, Bearer Bonds and Coupons Brokers (see Information for brokers and other middlemen) C Certificates of deposit, Certificates of Deposit Comments and suggestions, Comments and suggestions. H&r block state taxes Contingent payment debt instruments, Contingent Payment Debt Instruments D Debt instrument, Debt instrument. H&r block state taxes Debt instruments Long-term, Long-Term Debt Instruments Short-term, Short-Term Obligations Redeemed at Maturity Debt instruments and coupons purchased after 1984, Debt Instruments and Coupons Purchased After 1984 Debt instruments and coupons purchased after July 1, 1982, and before 1985, Debt Instruments and Coupons Purchased After July 1, 1982, and Before 1985 Debt instruments issued after 1954, corporate, Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 Debt instruments issued after 1984, Debt Instruments Issued After 1984 Debt instruments issued after July 1, 1982, Debt Instruments Issued After July 1, 1982, and Before 1985 Debt instruments issued after May 27, 1969, corporate, Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 Debt instruments not on the OID list, Debt Instruments Not on the OID List Debt Instruments on the OID list, Debt Instruments on the OID List Definitions, Definitions Accrual period, Accrual period. H&r block state taxes Acquisition premium, Acquisition premium. H&r block state taxes Adjusted issue price, Adjusted issue price. H&r block state taxes Debt instrument, Debt instrument. H&r block state taxes Issue price, Issue price. H&r block state taxes Market discount, Market discount. H&r block state taxes Original issue discount (OID), Original issue discount (OID). H&r block state taxes Premium, Premium. H&r block state taxes Qualified stated interest, Qualified stated interest. H&r block state taxes Stated redemption price at maturity, Stated redemption price at maturity. H&r block state taxes Yield to maturity, Yield to maturity (YTM). H&r block state taxes E Electronic payee statements, Electronic payee statements. H&r block state taxes F Form 1099-OID, Form 1099-OID. H&r block state taxes Free tax services, Free help with your tax return. H&r block state taxes H Help (see Tax help) I Inflation-indexed debt instruments, Inflation-Indexed Debt Instruments Information for brokers and other middlemen, Information for Brokers and Other Middlemen Information for owners of OID debt instruments, Information for Owners of OID Debt Instruments Issue price, Issue price. H&r block state taxes Issuers of OID debt instruments, Instructions for, Instructions for issuers of OID debt instruments. H&r block state taxes L Long-term debt instruments, Long-Term Debt Instruments M Market discount, Market discount. H&r block state taxes O OID list, Debt Instruments on, Debt Instruments on the OID List OID on long-term debt instruments, figuring, Figuring OID on Long-Term Debt Instruments OID on stripped bonds and coupons, figuring, Figuring OID on Stripped Bonds and Coupons OID, figuring, Figuring OID. H&r block state taxes Using section I, Using Section I. H&r block state taxes Using the income tax regulations, Using the income tax regulations. H&r block state taxes Original issue discount (OID), Original issue discount (OID). H&r block state taxes Owners of OID debt instruments, information for, Information for Owners of OID Debt Instruments P Premium, Premium. H&r block state taxes Publications (see Tax help) Q Qualified stated interest, Qualified stated interest. H&r block state taxes R REMIC and CDO information reporting requirements, REMIC and CDO information reporting requirements. H&r block state taxes S Section I, Section I. H&r block state taxes Section II, Section II. H&r block state taxes Section III, Section III. H&r block state taxes Short-term obligations redeemed at maturity, Short-Term Obligations Redeemed at Maturity Stated redemption price at maturity, Stated redemption price at maturity. H&r block state taxes Stripped bonds and coupons, figuring OID, Figuring OID on Stripped Bonds and Coupons Suggestions, Comments and, Comments and suggestions. H&r block state taxes T Tax help, How To Get Tax Help Y Yield to maturity, Yield to maturity (YTM). H&r block state taxes , Yield to maturity (YTM). H&r block state taxes Prev  Up     Home   More Online Publications
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Prevent and Report Identity Theft

Learn how to prevent and report identity theft.


Tips for Preventing Identity Theft

Identity thieves steal your personal information to commit fraud. They can damage your credit status and cost you time and money restoring your good name. To reduce your risk of becoming a victim, follow the tips below:

  • Don't carry your Social Security card in your wallet or write it on your checks. Only give out your SSN when absolutely necessary.
  • Protect your PIN. Never write a PIN on a credit/debit card or on a slip of paper kept in your wallet.
  • Watch out for "shoulder surfers". Use your free hand to shield the keypad when using pay phones and ATMs.
  • Collect mail promptly. Ask the post office to put your mail on hold when you are away from home for more than a day or two.
  • Pay attention to your billing cycles. If bills or financial statements are late, contact the sender.
  • Keep your receipts. Ask for carbons and incorrect charge slips as well. Promptly compare receipts with account statements. Watch for unauthorized transactions.
  • Tear up or shred unwanted receipts, credit offers, account statements, expired cards, etc., to prevent dumpster divers getting your personal information.
  • Store personal information in a safe place at home and at work. Don't leave it lying around.
  • Don't respond to unsolicited requests for personal information in the mail, over the phone or online.
  • Install firewalls and virus-detection software on your home computer.
  • Check your credit report once a year. Check it more frequently if you suspect someone has gotten access to your account information.

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How to Report Identity Theft

Your wallet contains some of your most important personal items, from hard-earned money to credit cards and driver’s license. For an identity thief, your wallet offers a treasure trove of personal information. If you suspect or become a victim of identity theft, follow these steps:

  • Report it to your financial institution. Call the phone number on your account statement or on the back of your credit or debit card.
  • Report the fraud to your local police immediately. Keep a copy of the police report, which will make it easier to prove your case to creditors and retailers.
  • Contact the credit-reporting bureaus and ask them to flag your account with a fraud alert, which asks merchants not to grant new credit without your approval.

If your identity has been stolen, you can use an ID Theft affidavit to report the theft to most of the parties involved. All three credit bureaus and many major creditors have agreed to accept the affidavit. You can download the ID theft affidavit or request a copy by calling toll-free 1-877-ID-THEFT (438-4338). You can also file a complaint with the Federal Trade Commission.

Use this helpful infographic (PDF) to help you remember the steps to take if your wallet or identity have been stolen.

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The H&r Block State Taxes

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