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How To Amend My 2011 Tax Return

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How To Amend My 2011 Tax Return

How to amend my 2011 tax return Publication 503 - Main Content Table of Contents Tests To Claim the CreditQualifying Person Test Earned Income Test Work-Related Expense Test Joint Return Test Provider Identification Test How To Figure the CreditFiguring Total Work-Related Expenses Earned Income Limit Dollar Limit Amount of Credit How To Claim the CreditTax credit not refundable. How to amend my 2011 tax return Employment Taxes for Household Employers How To Get Tax HelpLow Income Taxpayer Clinics Tests To Claim the Credit To be able to claim the credit for child and dependent care expenses, you must file Form 1040, Form 1040A, or Form 1040NR, not Form 1040EZ or Form 1040NR-EZ, and meet all the following tests. How to amend my 2011 tax return The care must be for one or more qualifying persons who are identified on Form 2441. How to amend my 2011 tax return (See Qualifying Person Test. How to amend my 2011 tax return ) You (and your spouse if filing jointly) must have earned income during the year. How to amend my 2011 tax return (However, see Rule for student-spouse or spouse not able to care for self under Earned Income Test, later. How to amend my 2011 tax return ) You must pay child and dependent care expenses so you (and your spouse if filing jointly) can work or look for work. How to amend my 2011 tax return (See Work-Related Expense Test, later. How to amend my 2011 tax return ) You must make payments for child and dependent care to someone you (and your spouse) cannot claim as a dependent. How to amend my 2011 tax return If you make payments to your child, he or she cannot be your dependent and must be age 19 or older by the end of the year. How to amend my 2011 tax return You cannot make payments to: Your spouse, or The parent of your qualifying person if your qualifying person is your child and under age 13. How to amend my 2011 tax return See Payments to Relatives or Dependents under Work-Related Expense Test, later. How to amend my 2011 tax return Your filing status may be single, head of household, or qualifying widow(er) with dependent child. How to amend my 2011 tax return If you are married, you must file a joint return, unless an exception applies to you. How to amend my 2011 tax return See Joint Return Test, later. How to amend my 2011 tax return You must identify the care provider on your tax return. How to amend my 2011 tax return (See Provider Identification Test, later. How to amend my 2011 tax return ) If you exclude or deduct dependent care benefits provided by a dependent care benefit plan, the total amount you exclude or deduct must be less than the dollar limit for qualifying expenses (generally, $3,000 if one qualifying person was cared for or $6,000 if two or more qualifying persons were cared for). How to amend my 2011 tax return (If two or more qualifying persons were cared for, the amount you exclude or deduct will always be less than the dollar limit, since the total amount you can exclude or deduct is limited to $5,000. How to amend my 2011 tax return See Reduced Dollar Limit under How To Figure the Credit, later. How to amend my 2011 tax return ) These tests are presented in Figure A and are also explained in detail in this publication. How to amend my 2011 tax return Qualifying Person Test Your child and dependent care expenses must be for the care of one or more qualifying persons. How to amend my 2011 tax return A qualifying person is: Your qualifying child who is your dependent and who was under age 13 when the care was provided (but see Child of divorced or separated parents or parents living apart , later), Your spouse who was not physically or mentally able to care for himself or herself and lived with you for more than half the year, or A person who was not physically or mentally able to care for himself or herself, lived with you for more than half the year, and either: Was your dependent, or Would have been your dependent except that: He or she received gross income of $3,900 or more, He or she filed a joint return, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. How to amend my 2011 tax return Dependent defined. How to amend my 2011 tax return   A dependent is a person, other than you or your spouse, for whom you can claim an exemption. How to amend my 2011 tax return To be your dependent, a person must be your qualifying child (or your qualifying relative). How to amend my 2011 tax return Qualifying child. How to amend my 2011 tax return   To be your qualifying child, a child must live with you for more than half the year and meet other requirements. How to amend my 2011 tax return More information. How to amend my 2011 tax return   For more information about who is a dependent or a qualifying child, see Publication 501. How to amend my 2011 tax return Physically or mentally not able to care for oneself. How to amend my 2011 tax return   Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. How to amend my 2011 tax return Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves. How to amend my 2011 tax return Person qualifying for part of year. How to amend my 2011 tax return   You determine a person's qualifying status each day. How to amend my 2011 tax return For example, if the person for whom you pay child and dependent care expenses no longer qualifies on September 16, count only those expenses through September 15. How to amend my 2011 tax return Also see Yearly limit under Dollar Limit, later. How to amend my 2011 tax return Birth or death of otherwise qualifying person. How to amend my 2011 tax return   In determining whether a person is a qualifying person, a person who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the person's home more than half the time he or she was alive in 2013. How to amend my 2011 tax return Taxpayer identification number. How to amend my 2011 tax return   You must include on your return the name and taxpayer identification number (generally the social security number) of the qualifying person(s). How to amend my 2011 tax return If the correct information is not shown, the credit may be reduced or disallowed. How to amend my 2011 tax return Individual taxpayer identification number (ITIN) for aliens. How to amend my 2011 tax return   If your qualifying person is a nonresident or resident alien who does not have and cannot get a social security number (SSN), use that person's ITIN. How to amend my 2011 tax return The ITIN is entered wherever an SSN is requested on a tax return. How to amend my 2011 tax return If the alien does not have an ITIN, he or she must apply for one. How to amend my 2011 tax return See Form W-7, Application for IRS Individual Taxpayer Identification Number, for details. How to amend my 2011 tax return   An ITIN is for tax use only. How to amend my 2011 tax return It does not entitle the holder to social security benefits or change the holder's employment or immigration status under U. How to amend my 2011 tax return S. How to amend my 2011 tax return law. How to amend my 2011 tax return Adoption taxpayer identification number (ATIN). How to amend my 2011 tax return   If your qualifying person is a child who was placed in your home for adoption and for whom you do not have an SSN, you must get an ATIN for the child. How to amend my 2011 tax return File Form W-7A, Application for Taxpayer Identification Number for Pending U. How to amend my 2011 tax return S. How to amend my 2011 tax return Adoptions. How to amend my 2011 tax return Child of divorced or separated parents or parents living apart. How to amend my 2011 tax return   Even if you cannot claim your child as a dependent, he or she is treated as your qualifying person if: The child was under age 13 or was not physically or mentally able to care for himself or herself, The child received over half of his or her support during the calendar year from one or both parents who are divorced or legally separated under a decree of divorce or separate maintenance, are separated under a written separation agreement, or lived apart at all times during the last 6 months of the calendar year, The child was in the custody of one or both parents for more than half the year, and You were the child's custodial parent. How to amend my 2011 tax return   The custodial parent is the parent with whom the child lived for the greater number of nights in 2013. How to amend my 2011 tax return If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. How to amend my 2011 tax return For details and an exception for a parent who works at night, see Publication 501. How to amend my 2011 tax return   The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents. How to amend my 2011 tax return Please click here for the text description of the image. How to amend my 2011 tax return Figure a. How to amend my 2011 tax return Can you claim the credit Earned Income Test To claim the credit, you (and your spouse if filing jointly) must have earned income during the year. How to amend my 2011 tax return Earned income. How to amend my 2011 tax return   Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. How to amend my 2011 tax return A net loss from self-employment reduces earned income. How to amend my 2011 tax return Earned income also includes strike benefits and any disability pay you report as wages. How to amend my 2011 tax return   Generally, only taxable compensation is included. How to amend my 2011 tax return However, you can elect to include nontaxable combat pay in earned income. How to amend my 2011 tax return If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. How to amend my 2011 tax return (In other words, if one of you makes the election, the other one can also make it but does not have to. How to amend my 2011 tax return ) Including this income will give you a larger credit only if your (or your spouse's) other earned income is less than the amount entered on line 3 of Form 2441. How to amend my 2011 tax return You should figure your credit both ways and make the election if it gives you a greater tax benefit. How to amend my 2011 tax return    You can choose to include your nontaxable combat pay in earned income when figuring your credit for child and dependent care expenses, even if you choose not to include it in earned income for the earned income credit or the exclusion or deduction for dependent care benefits. How to amend my 2011 tax return Members of certain religious faiths opposed to social security. How to amend my 2011 tax return   This section is for persons who are members of certain religious faiths that are opposed to participation in Social Security Act programs and have an IRS-approved form that exempts certain income from social security and Medicare taxes. How to amend my 2011 tax return These forms are: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, and Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits, for use by members of recognized religious groups. How to amend my 2011 tax return   Each form is discussed here in terms of what is or is not earned income for purposes of the child and dependent care credit. How to amend my 2011 tax return For information on the use of these forms, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. How to amend my 2011 tax return Form 4361. How to amend my 2011 tax return   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee are earned income. How to amend my 2011 tax return This includes wages, salaries, tips, and other taxable employee compensation. How to amend my 2011 tax return   However, amounts you received for ministerial duties, but not as an employee, do not count as earned income. How to amend my 2011 tax return Examples include fees for performing marriages and honoraria for delivering speeches. How to amend my 2011 tax return   Any amount you received for work that is not related to your ministerial duties is earned income. How to amend my 2011 tax return Form 4029. How to amend my 2011 tax return   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation are earned income. How to amend my 2011 tax return   However, amounts you received as a self-employed individual do not count as earned income. How to amend my 2011 tax return What is not earned income?   Earned income does not include: Pensions and annuities, Social security and railroad retirement benefits, Workers' compensation, Interest and dividends, Unemployment compensation, Scholarships or fellowship grants, except for those reported on Form W-2 and paid to you for teaching or other services, Nontaxable workfare payments, Child support payments received, Income of a nonresident alien that is not effectively connected with a U. How to amend my 2011 tax return S. How to amend my 2011 tax return trade or business, or Any amount received for work while an inmate in a penal institution. How to amend my 2011 tax return Rule for student-spouse or spouse not able to care for self. How to amend my 2011 tax return   Your spouse is treated as having earned income for any month that he or she is: A full-time student, or Physically or mentally not able to care for himself or herself. How to amend my 2011 tax return (Your spouse also must live with you for more than half the year. How to amend my 2011 tax return )   If you are filing a joint return, this rule also applies to you. How to amend my 2011 tax return You can be treated as having earned income for any month you are a full-time student or not able to care for yourself. How to amend my 2011 tax return   Figure the earned income of the nonworking spouse, described under (1) or (2) above, as shown under Earned Income Limit under How To Figure the Credit, later. How to amend my 2011 tax return   This rule applies to only one spouse for any one month. How to amend my 2011 tax return If, in the same month, both you and your spouse do not work and are either full-time students or not physically or mentally able to care for yourselves, only one of you can be treated as having earned income in that month. How to amend my 2011 tax return Full-time student. How to amend my 2011 tax return    You are a full-time student if you are enrolled at a school for the number of hours or classes that the school considers full time. How to amend my 2011 tax return You must have been a full-time student for some part of each of 5 calendar months during the year. How to amend my 2011 tax return (The months need not be consecutive. How to amend my 2011 tax return ) School. How to amend my 2011 tax return   The term “school” includes high schools, colleges, universities, and technical, trade, and mechanical schools. How to amend my 2011 tax return A school does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. How to amend my 2011 tax return Work-Related Expense Test Child and dependent care expenses must be work-related to qualify for the credit. How to amend my 2011 tax return Expenses are considered work-related only if both of the following are true. How to amend my 2011 tax return They allow you (and your spouse if filing jointly) to work or look for work. How to amend my 2011 tax return They are for a qualifying person's care. How to amend my 2011 tax return Working or Looking for Work To be work-related, your expenses must allow you to work or look for work. How to amend my 2011 tax return If you are married, generally both you and your spouse must work or look for work. How to amend my 2011 tax return One spouse is treated as working during any month he or she is a full-time student or is not physically or mentally able to care for himself or herself. How to amend my 2011 tax return Your work can be for others or in your own business or partnership. How to amend my 2011 tax return It can be either full time or part time. How to amend my 2011 tax return Work also includes actively looking for work. How to amend my 2011 tax return However, if you do not find a job and have no earned income for the year, you cannot take this credit. How to amend my 2011 tax return See Earned Income Test, earlier. How to amend my 2011 tax return An expense is not considered work-related merely because you had it while you were working. How to amend my 2011 tax return The purpose of the expense must be to allow you to work. How to amend my 2011 tax return Whether your expenses allow you to work or look for work depends on the facts. How to amend my 2011 tax return Example 1. How to amend my 2011 tax return The cost of a babysitter while you and your spouse go out to eat is not normally a work-related expense. How to amend my 2011 tax return Example 2. How to amend my 2011 tax return You work during the day. How to amend my 2011 tax return Your spouse works at night and sleeps during the day. How to amend my 2011 tax return You pay for care of your 5-year-old child during the hours when you are working and your spouse is sleeping. How to amend my 2011 tax return Your expenses are considered work-related. How to amend my 2011 tax return Volunteer work. How to amend my 2011 tax return   For this purpose, you are not considered to be working if you do unpaid volunteer work or volunteer work for a nominal salary. How to amend my 2011 tax return Work for part of year. How to amend my 2011 tax return   If you work or actively look for work during only part of the period covered by the expenses, then you must figure your expenses for each day. How to amend my 2011 tax return For example, if you work all year and pay care expenses of $250 a month ($3,000 for the year), all the expenses are work related. How to amend my 2011 tax return However, if you work or look for work for only 2 months and 15 days during the year and pay expenses of $250 a month, your work-related expenses are limited to $625 (2½ months × $250). How to amend my 2011 tax return Temporary absence from work. How to amend my 2011 tax return   You do not have to figure your expenses for each day during a short, temporary absence from work, such as for vacation or a minor illness, if you have to pay for care anyway. How to amend my 2011 tax return Instead, you can figure your credit including the expenses you paid for the period of absence. How to amend my 2011 tax return   An absence of 2 weeks or less is a short, temporary absence. How to amend my 2011 tax return An absence of more than 2 weeks may be considered a short, temporary absence, depending on the circumstances. How to amend my 2011 tax return Example. How to amend my 2011 tax return You pay a nanny to care for your 2-year-old son and 4-year-old daughter so you can work. How to amend my 2011 tax return You become ill and miss 4 months of work but receive sick pay. How to amend my 2011 tax return You continue to pay the nanny to care for the children while you are ill. How to amend my 2011 tax return Your absence is not a short, temporary absence, and your expenses are not considered work-related. How to amend my 2011 tax return Part-time work. How to amend my 2011 tax return   If you work part-time, you generally must figure your expenses for each day. How to amend my 2011 tax return However, if you have to pay for care weekly, monthly, or in another way that includes both days worked and days not worked, you can figure your credit including the expenses you paid for days you did not work. How to amend my 2011 tax return Any day when you work at least 1 hour is a day of work. How to amend my 2011 tax return Example 1. How to amend my 2011 tax return You work 3 days a week. How to amend my 2011 tax return While you work, your 6-year-old child attends a dependent care center, which complies with all state and local regulations. How to amend my 2011 tax return You can pay the center $150 for any 3 days a week or $250 for 5 days a week. How to amend my 2011 tax return Your child attends the center 5 days a week. How to amend my 2011 tax return Your work-related expenses are limited to $150 a week. How to amend my 2011 tax return Example 2. How to amend my 2011 tax return The facts are the same as in Example 1 except the center does not offer a 3-day option. How to amend my 2011 tax return The entire $250 weekly fee may be a work-related expense. How to amend my 2011 tax return Care of a Qualifying Person To be work-related, your expenses must be to provide care for a qualifying person. How to amend my 2011 tax return You do not have to choose the least expensive way of providing the care. How to amend my 2011 tax return The cost of a paid care provider may be an expense for the care of a qualifying person even if another care provider is available at no cost. How to amend my 2011 tax return Expenses are for the care of a qualifying person only if their main purpose is the person's well-being and protection. How to amend my 2011 tax return Expenses for household services qualify if part of the services is for the care of qualifying persons. How to amend my 2011 tax return See Household Services, later. How to amend my 2011 tax return Expenses not for care. How to amend my 2011 tax return   Expenses for care do not include amounts you pay for food, lodging, clothing, education, and entertainment. How to amend my 2011 tax return However, you can include small amounts paid for these items if they are incidental to and cannot be separated from the cost of caring for the qualifying person. How to amend my 2011 tax return Otherwise, see the discussion of Expenses partly work-related, later. How to amend my 2011 tax return   Child support payments are not for care and do not qualify for the credit. How to amend my 2011 tax return Education. How to amend my 2011 tax return   Expenses for a child in nursery school, preschool, or similar programs for children below the level of kindergarten are expenses for care. How to amend my 2011 tax return   Expenses to attend kindergarten or a higher grade are not expenses for care. How to amend my 2011 tax return Do not use these expenses to figure your credit. How to amend my 2011 tax return   However, expenses for before- or after-school care of a child in kindergarten or a higher grade may be expenses for care. How to amend my 2011 tax return   Summer school and tutoring programs are not for care. How to amend my 2011 tax return Example 1. How to amend my 2011 tax return You take your 3-year-old child to a nursery school that provides lunch and a few educational activities as part of its preschool childcare service. How to amend my 2011 tax return The lunch and educational activities are incidental to the childcare, and their cost cannot be separated from the cost of care. How to amend my 2011 tax return You can count the total cost when you figure the credit. How to amend my 2011 tax return Example 2. How to amend my 2011 tax return You place your 10-year-old child in a boarding school so you can work full time. How to amend my 2011 tax return Only the part of the boarding school expense that is for the care of your child is a work-related expense. How to amend my 2011 tax return You can count that part of the expense in figuring your credit if it can be separated from the cost of education. How to amend my 2011 tax return You cannot count any part of the amount you pay the school for your child's education. How to amend my 2011 tax return Care outside your home. How to amend my 2011 tax return   You can count the cost of care provided outside your home if the care is for your dependent under age 13 or any other qualifying person who regularly spends at least 8 hours each day in your home. How to amend my 2011 tax return Dependent care center. How to amend my 2011 tax return   You can count care provided outside your home by a dependent care center only if the center complies with all state and local regulations that apply to these centers. How to amend my 2011 tax return   A dependent care center is a place that provides care for more than six persons (other than persons who live there) and receives a fee, payment, or grant for providing services for any of those persons, even if the center is not run for profit. How to amend my 2011 tax return Camp. How to amend my 2011 tax return   The cost of sending your child to an overnight camp is not considered a work-related expense. How to amend my 2011 tax return    The cost of sending your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity, such as computers or soccer. How to amend my 2011 tax return Transportation. How to amend my 2011 tax return   If a care provider takes a qualifying person to or from a place where care is provided, that transportation is for the care of the qualifying person. How to amend my 2011 tax return This includes transportation by bus, subway, taxi, or private car. How to amend my 2011 tax return However, transportation not provided by a care provider is not for the care of a qualifying person. How to amend my 2011 tax return Also, if you pay the transportation cost for the care provider to come to your home, that expense is not for care of a qualifying person. How to amend my 2011 tax return Fees and deposits. How to amend my 2011 tax return   Fees you paid to an agency to get the services of a care provider, deposits you paid to an agency or preschool, application fees, and other indirect expenses are work-related expenses if you have to pay them to get care, even though they are not directly for care. How to amend my 2011 tax return However, a forfeited deposit is not for the care of a qualifying person if care is not provided. How to amend my 2011 tax return Example 1. How to amend my 2011 tax return You paid a fee to an agency to get the services of the nanny who cares for your 2-year-old daughter while you work. How to amend my 2011 tax return The fee you paid is a work-related expense. How to amend my 2011 tax return Example 2. How to amend my 2011 tax return You placed a deposit with a preschool to reserve a place for your 3-year-old child. How to amend my 2011 tax return You later sent your child to a different preschool and forfeited the deposit. How to amend my 2011 tax return The forfeited deposit is not for care and so is not a work-related expense. How to amend my 2011 tax return Household Services Expenses you pay for household services meet the work-related expense test if they are at least partly for the well-being and protection of a qualifying person. How to amend my 2011 tax return Definition. How to amend my 2011 tax return   Household services are ordinary and usual services done in and around your home that are necessary to run your home. How to amend my 2011 tax return They include the services of a housekeeper, maid, or cook. How to amend my 2011 tax return However, they do not include the services of a chauffeur, bartender, or gardener. How to amend my 2011 tax return Housekeeper. How to amend my 2011 tax return   In this publication, the term housekeeper refers to any household employee whose services include the care of a qualifying person. How to amend my 2011 tax return Expenses partly work-related. How to amend my 2011 tax return   If part of an expense is work-related (for either household services or the care of a qualifying person) and part is for other purposes, you have to divide the expense. How to amend my 2011 tax return To figure your credit, count only the part that is work-related. How to amend my 2011 tax return However, you do not have to divide the expense if only a small part is for other purposes. How to amend my 2011 tax return Example. How to amend my 2011 tax return You pay a housekeeper to care for your 9-year-old and 15-year-old children so you can work. How to amend my 2011 tax return The housekeeper spends most of the time doing normal household work and spends 30 minutes a day driving you to and from work. How to amend my 2011 tax return You do not have to divide the expenses. How to amend my 2011 tax return You can treat the entire expense of the housekeeper as work-related because the time spent driving is minimal. How to amend my 2011 tax return Nor do you have to divide the expenses between the two children, even though the expenses are partly for the 15-year-old child who is not a qualifying person, because the expense is also partly for the care of your 9-year-old child, who is a qualifying person. How to amend my 2011 tax return However, the dollar limit (discussed later) is based on one qualifying person, not two. How to amend my 2011 tax return Meals and lodging provided for housekeeper. How to amend my 2011 tax return   If you have expenses for meals that your housekeeper eats in your home because of his or her employment, count these as work-related expenses. How to amend my 2011 tax return If you have extra expenses for providing lodging in your home to the housekeeper, count these as work-related expenses also. How to amend my 2011 tax return Example. How to amend my 2011 tax return To provide lodging to the housekeeper, you move to an apartment with an extra bedroom. How to amend my 2011 tax return You can count the extra rent and utility expenses for the housekeeper's bedroom as work-related. How to amend my 2011 tax return However, if your housekeeper moves into an existing bedroom in your home, you can count only the extra utility expenses as work-related. How to amend my 2011 tax return Taxes paid on wages. How to amend my 2011 tax return   The taxes you pay on wages for qualifying child and dependent care services are work-related expenses. How to amend my 2011 tax return For more information on a household employer's tax responsibilities, see Employment Taxes for Household Employers, later. How to amend my 2011 tax return Payments to Relatives or Dependents You can count work-related payments you make to relatives who are not your dependents, even if they live in your home. How to amend my 2011 tax return However, do not count any amounts you pay to: A dependent for whom you (or your spouse if filing jointly) can claim an exemption, Your child who was under age 19 at the end of the year, even if he or she is not your dependent, A person who was your spouse any time during the year, or The parent of your qualifying person if your qualifying person is your child and under age 13. How to amend my 2011 tax return Joint Return Test Generally, married couples must file a joint return to take the credit. How to amend my 2011 tax return However, if you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. How to amend my 2011 tax return Legally separated. How to amend my 2011 tax return   You are not considered married if you are legally separated from your spouse under a decree of divorce or separate maintenance. How to amend my 2011 tax return You may be eligible to take the credit on your return using head of household filing status. How to amend my 2011 tax return Married and living apart. How to amend my 2011 tax return   You are not considered married and are eligible to take the credit if all the following apply. How to amend my 2011 tax return You file a return apart from your spouse. How to amend my 2011 tax return Your home is the home of a qualifying person for more than half the year. How to amend my 2011 tax return You pay more than half the cost of keeping up your home for the year. How to amend my 2011 tax return Your spouse does not live in your home for the last 6 months of the year. How to amend my 2011 tax return Costs of keeping up a home. How to amend my 2011 tax return   The costs of keeping up a home normally include property taxes, mortgage interest, rent, utility charges, home repairs, insurance on the home, and food eaten at home. How to amend my 2011 tax return   The costs of keeping up a home do not include payments for clothing, education, medical treatment, vacations, life insurance, transportation, or mortgage principal. How to amend my 2011 tax return   They also do not include the purchase, permanent improvement, or replacement of property. How to amend my 2011 tax return For example, you cannot include the cost of replacing a water heater. How to amend my 2011 tax return However, you can include the cost of repairing a water heater. How to amend my 2011 tax return Death of spouse. How to amend my 2011 tax return   If your spouse died during the year and you do not remarry before the end of the year, you generally must file a joint return to take the credit. How to amend my 2011 tax return If you do remarry before the end of the year, the credit can be claimed on your deceased spouse's own return. How to amend my 2011 tax return Provider Identification Test You must identify all persons or organizations that provide care for your child or dependent. How to amend my 2011 tax return Use Form 2441, Part I, to show the information. How to amend my 2011 tax return If you do not have any care providers and you are filing Form 2441 only to report taxable income in Part III, enter “none” in line 1, column (a). How to amend my 2011 tax return Information needed. How to amend my 2011 tax return   To identify the care provider, you must give the provider's: Name, Address, and Taxpayer identification number. How to amend my 2011 tax return    If the care provider is an individual, the taxpayer identification number is his or her social security number or individual taxpayer identification number. How to amend my 2011 tax return If the care provider is an organization, then it is the employer identification number (EIN). How to amend my 2011 tax return   You do not have to show the taxpayer identification number if the care provider is a tax-exempt organization (such as a church or school). How to amend my 2011 tax return In this case, enter “Tax-Exempt” in the space where Form 2441 asks for the number. How to amend my 2011 tax return   If you cannot provide all of the information or the information is incorrect, you must be able to show that you used due diligence (discussed later) in trying to furnish the necessary information. How to amend my 2011 tax return Getting the information. How to amend my 2011 tax return    You can use Form W-10, Dependent Care Provider's Identification and Certification, to request the required information from the care provider. How to amend my 2011 tax return If you do not use Form W-10, you can get the information from one of the other sources listed in the instructions for Form W-10, including: A copy of the provider's social security card, A copy of the provider's completed Form W-4, Employee's Withholding Allowance Certificate, if he or she is your household employee, A copy of the statement furnished by your employer if the provider is your employer's dependent care plan, or A letter or invoice from the provider if it shows the necessary information. How to amend my 2011 tax return    You should keep this information with your tax records. How to amend my 2011 tax return Do not send Form W-10 (or other document containing this information) to the Internal Revenue Service. How to amend my 2011 tax return Due diligence. How to amend my 2011 tax return   If the care provider information you give is incorrect or incomplete, your credit may not be allowed. How to amend my 2011 tax return However, if you can show that you used due diligence in trying to supply the information, you can still claim the credit. How to amend my 2011 tax return   You can show due diligence by getting and keeping the provider's completed Form W-10 or one of the other sources of information just listed. How to amend my 2011 tax return Care providers can be penalized if they do not provide this information to you or if they provide incorrect information. How to amend my 2011 tax return Provider refusal. How to amend my 2011 tax return    If the provider refuses to give you the identifying information, you should report on Form 2441 whatever information you have (such as the name and address). How to amend my 2011 tax return Enter “See Attached Statement” in the columns calling for the information you do not have. How to amend my 2011 tax return Then attach a statement explaining that you requested the information from the care provider, but the provider did not give you the information. How to amend my 2011 tax return Be sure to write your name and social security number on this statement. How to amend my 2011 tax return The statement will show that you used due diligence in trying to furnish the necessary information. How to amend my 2011 tax return U. How to amend my 2011 tax return S. How to amend my 2011 tax return citizens and resident aliens living abroad. How to amend my 2011 tax return   If you are living abroad, your care provider may not have, and may not be required to get, a U. How to amend my 2011 tax return S. How to amend my 2011 tax return taxpayer identification number (for example, an SSN or an EIN). How to amend my 2011 tax return If so, enter “LAFCP” (Living Abroad Foreign Care Provider) in the space for the care provider's taxpayer identification number. How to amend my 2011 tax return How To Figure the Credit Your credit is a percentage of your work-related expenses. How to amend my 2011 tax return Your expenses are subject to the earned income limit and the dollar limit. How to amend my 2011 tax return The percentage is based on your adjusted gross income. How to amend my 2011 tax return Figuring Total Work-Related Expenses To figure the credit for 2013 work-related expenses, count only those you paid by December 31, 2013. How to amend my 2011 tax return Expenses prepaid in an earlier year. How to amend my 2011 tax return   If you pay for services before they are provided, you can count the prepaid expenses only in the year the care is received. How to amend my 2011 tax return Claim the expenses for the later year as if they were actually paid in that later year. How to amend my 2011 tax return Expenses not paid until the following year. How to amend my 2011 tax return   Do not count 2012 expenses that you paid in 2013 as work-related expenses for 2013. How to amend my 2011 tax return You may be able to claim an additional credit for them on your 2013 return, but you must figure it separately. How to amend my 2011 tax return See Payments for prior year's expenses under Amount of Credit, later. How to amend my 2011 tax return If you had expenses in 2013 that you did not pay until 2014, you cannot count them when figuring your 2013 credit. How to amend my 2011 tax return You may be able to claim a credit for them on your 2014 return. How to amend my 2011 tax return Expenses reimbursed. How to amend my 2011 tax return   If a state social services agency pays you a nontaxable amount to reimburse you for some of your child and dependent care expenses, you cannot count the expenses that are reimbursed as work-related expenses. How to amend my 2011 tax return Example. How to amend my 2011 tax return You paid work-related expenses of $3,000. How to amend my 2011 tax return You are reimbursed $2,000 by a state social services agency. How to amend my 2011 tax return You can use only $1,000 to figure your credit. How to amend my 2011 tax return Medical expenses. How to amend my 2011 tax return   Some expenses for the care of qualifying persons who are not able to care for themselves may qualify as work-related expenses and also as medical expenses. How to amend my 2011 tax return You can use them either way, but you cannot use the same expenses to claim both a credit and a medical expense deduction. How to amend my 2011 tax return   If you use these expenses to figure the credit and they are more than the earned income limit or the dollar limit, discussed later, you can add the excess to your medical expenses. How to amend my 2011 tax return However, if you use your total expenses to figure your medical expense deduction, you cannot use any part of them to figure your credit. How to amend my 2011 tax return For information on medical expenses, see Publication 502, Medical and Dental Expenses. How to amend my 2011 tax return    Amounts excluded from your income under your employer's dependent care benefits plan cannot be used to claim a medical expense deduction. How to amend my 2011 tax return Dependent Care Benefits If you receive dependent care benefits, your dollar limit for purposes of the credit may be reduced. How to amend my 2011 tax return See Reduced Dollar Limit, later. How to amend my 2011 tax return But, even if you cannot take the credit, you may be able to take an exclusion or deduction for the dependent care benefits. How to amend my 2011 tax return Dependent care benefits. How to amend my 2011 tax return    Dependent care benefits include: Amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work, The fair market value of care in a daycare facility provided or sponsored by your employer, and Pre-tax contributions you made under a dependent care flexible spending arrangement. How to amend my 2011 tax return Your salary may have been reduced to pay for these benefits. How to amend my 2011 tax return If you received benefits as an employee, they should be shown in box 10 of your Form W-2, Wage and Tax Statement. How to amend my 2011 tax return See Statement for employee, later. How to amend my 2011 tax return Benefits you received as a partner should be shown in box 13 of your Schedule K-1 (Form 1065) with code O. How to amend my 2011 tax return   Enter the amount of these benefits on Form 2441, Part III, line 12. How to amend my 2011 tax return Exclusion or deduction. How to amend my 2011 tax return   If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. How to amend my 2011 tax return Your employer can tell you whether your benefit plan qualifies. How to amend my 2011 tax return To claim the exclusion, you must complete Part III of Form 2441. How to amend my 2011 tax return You cannot use Form 1040EZ. How to amend my 2011 tax return   If you are self-employed and receive benefits from a qualified dependent care benefit plan, you are treated as both employer and employee. How to amend my 2011 tax return Therefore, you would not get an exclusion from wages. How to amend my 2011 tax return Instead, you would get a deduction on Form 1040, Schedule C, line 14; Schedule E, line 19 or 28; or Schedule F, line 15. How to amend my 2011 tax return To claim the deduction, you must use Form 2441. How to amend my 2011 tax return   The amount you can exclude or deduct is limited to the smallest of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). How to amend my 2011 tax return   The definition of earned income for the exclusion or deduction is the same as the definition used when figuring the credit except that earned income for the exclusion or deduction does not include any dependent care benefits you receive. How to amend my 2011 tax return    You can choose to include your nontaxable combat pay in earned income when figuring your exclusion or deduction, even if you choose not to include it in earned income for the earned income credit or the credit for child and dependent care expenses. How to amend my 2011 tax return Statement for employee. How to amend my 2011 tax return   Your employer must give you a Form W-2 (or similar statement), showing in box 10 the total amount of dependent care benefits provided to you during the year under a qualified plan. How to amend my 2011 tax return Your employer will also include any dependent care benefits over $5,000 in your wages shown on your Form W-2 in box 1. How to amend my 2011 tax return Effect of exclusion on credit. How to amend my 2011 tax return   If you exclude dependent care benefits from your income, the amount of the excluded benefits: Is not included in your work-related expenses, and Reduces the dollar limit, discussed later. How to amend my 2011 tax return Earned Income Limit The amount of work-related expenses you use to figure your credit cannot be more than: Your earned income for the year, if you are single at the end of the year, or The smaller of your or your spouse's earned income for the year if you are married at the end of the year. How to amend my 2011 tax return Earned income for the purpose of figuring the credit is defined under Earned Income Test, earlier. How to amend my 2011 tax return For purposes of item (2), use your spouse's earned income for the entire year, even if you were married for only part of the year. How to amend my 2011 tax return Example. How to amend my 2011 tax return You remarried on December 3. How to amend my 2011 tax return Your earned income for the year was $18,000. How to amend my 2011 tax return Your new spouse's earned income for the year was $2,000. How to amend my 2011 tax return You paid work-related expenses of $3,000 for the care of your 5-year-old child and qualified to claim the credit. How to amend my 2011 tax return The amount of expenses you use to figure your credit cannot be more than $2,000 (the smaller of your earned income or that of your spouse). How to amend my 2011 tax return Separated spouse. How to amend my 2011 tax return   If you are legally separated or married and living apart from your spouse (as described under Joint Return Test, earlier), you are not considered married for purposes of the earned income limit. How to amend my 2011 tax return Use only your income in figuring the earned income limit. How to amend my 2011 tax return Surviving spouse. How to amend my 2011 tax return   If your spouse died during the year and you file a joint return as a surviving spouse, you may, but are not required to, take into account the earned income of your spouse who died during the year. How to amend my 2011 tax return Community property laws. How to amend my 2011 tax return   Disregard community property laws when you figure earned income for this credit. How to amend my 2011 tax return Self-employment earnings. How to amend my 2011 tax return   If you are self-employed, include your net earnings in earned income. How to amend my 2011 tax return For purposes of the child and dependent care credit, net earnings from self-employment generally means the amount from Schedule SE (either Section A or Section B), line 3, minus any deduction for self-employment tax on Form 1040 or Form 1040NR, line 27. How to amend my 2011 tax return Include your self-employment earnings in earned income, even if they are less than $400 and you did not file Schedule SE. How to amend my 2011 tax return Clergy or church employee. How to amend my 2011 tax return   If you are a member of the clergy or a church employee, see the Instructions for Form 2441 for details. How to amend my 2011 tax return Statutory employee. How to amend my 2011 tax return   If you filed Schedule C (Form 1040) or C-EZ (Form 1040) to report income as a statutory employee, also include as earned income the amount from line 1 of that Schedule C (Form 1040) or C-EZ (Form 1040). How to amend my 2011 tax return Net loss. How to amend my 2011 tax return   You must reduce your earned income by any net loss from self-employment. How to amend my 2011 tax return Optional method if earnings are low or a net loss. How to amend my 2011 tax return   If your net earnings from self-employment are low or you have a net loss, you may be able to figure your net earnings by using an optional method instead of the regular method. How to amend my 2011 tax return Get Publication 334, Tax Guide for Small Business, for details. How to amend my 2011 tax return If you use an optional method to figure net earnings for self-employment tax purposes, include those net earnings in your earned income for this credit. How to amend my 2011 tax return In this case, subtract any deduction you claimed on Form 1040 or Form 1040NR, line 27, from the total of the amounts on Schedule SE, Section B, lines 3 and 4b, to figure your net earnings. How to amend my 2011 tax return You or your spouse is a student or not able to care for self. How to amend my 2011 tax return   Your spouse who is either a full-time student or not able to care for himself or herself is treated as having earned income. How to amend my 2011 tax return His or her earned income for each month is considered to be at least $250 if there is one qualifying person in your home, or at least $500 if there are two or more. How to amend my 2011 tax return Spouse works. How to amend my 2011 tax return   If your spouse works during that month, use the higher of $250 (or $500) or his or her actual earned income for that month. How to amend my 2011 tax return Spouse qualifies for part of month. How to amend my 2011 tax return   If your spouse is a full-time student or not able to care for himself or herself for only part of a month, the full $250 (or $500) still applies for that month. How to amend my 2011 tax return You are a student or not able to care for self. How to amend my 2011 tax return   These rules also apply if you are a student or not able to care for yourself and are filing a joint return. How to amend my 2011 tax return For each month or part of a month you are a student or not able to care for yourself, your earned income is considered to be at least $250 (or $500). How to amend my 2011 tax return If you also work during that month, use the higher of $250 (or $500) or your actual earned income for that month. How to amend my 2011 tax return Both spouses qualify. How to amend my 2011 tax return   If, in the same month, both you and your spouse are either full-time students or not able to care for yourselves, only one spouse can be considered to have this earned income of $250 (or $500) for that month. How to amend my 2011 tax return Example. How to amend my 2011 tax return Jim works and keeps up a home for himself and his wife Sharon. How to amend my 2011 tax return Because of an accident, Sharon is not able to care for herself for 11 months during the tax year. How to amend my 2011 tax return During the 11 months, Jim pays $3,300 of work-related expenses for Sharon's care. How to amend my 2011 tax return These expenses also qualify as medical expenses. How to amend my 2011 tax return Their adjusted gross income is $29,000 and the entire amount is Jim's earned income. How to amend my 2011 tax return Jim and Sharon's earned income limit is the smallest of the following amounts. How to amend my 2011 tax return   Jim and Sharon's Earned Income Limit   1) Work-related expenses Jim paid $   3,300   2) Jim's earned income $   29,000   3) Income considered earned by Sharon (11 × $250) $    2,750   Jim and Sharon can use $2,750 to figure the credit and treat the balance of $550 ($3,300 − $2,750) as a medical expense. How to amend my 2011 tax return However, if they use the $3,300 first as a medical expense, they cannot use any part of that amount to figure the credit. How to amend my 2011 tax return Dollar Limit There is a dollar limit on the amount of your work-related expenses you can use to figure the credit. How to amend my 2011 tax return This limit is $3,000 for one qualifying person, or $6,000 for two or more qualifying persons. How to amend my 2011 tax return If you paid work-related expenses for the care of two or more qualifying persons, the applicable dollar limit is $6,000. How to amend my 2011 tax return This limit does not need to be divided equally among them. How to amend my 2011 tax return For example, if your work-related expenses for the care of one qualifying person are $3,200 and your work-related expenses for another qualifying person are $2,800, you can use the total, $6,000, when figuring the credit. How to amend my 2011 tax return Yearly limit. How to amend my 2011 tax return   The dollar limit is a yearly limit. How to amend my 2011 tax return The amount of the dollar limit remains the same no matter how long, during the year, you have a qualifying person in your household. How to amend my 2011 tax return Use the $3,000 limit if you paid work-related expenses for the care of one qualifying person at any time during the year. How to amend my 2011 tax return Use $6,000 if you paid work-related expenses for the care of more than one qualifying person at any time during the year. How to amend my 2011 tax return Example 1. How to amend my 2011 tax return You pay $500 a month for after-school care for your son. How to amend my 2011 tax return He turned 13 on May 1 and is no longer a qualifying person. How to amend my 2011 tax return You can use the $2,000 of expenses for his care January through April to figure your credit because it is not more than the $3,000 yearly limit. How to amend my 2011 tax return Example 2. How to amend my 2011 tax return In July of this year, to permit your spouse to begin a new job, you enrolled your 3-year-old daughter in a nursery school that provides preschool childcare. How to amend my 2011 tax return You paid $300 per month for the childcare. How to amend my 2011 tax return You can use the full $1,800 you paid ($300 × 6 months) as qualified expenses because it is not more than the $3,000 yearly limit. How to amend my 2011 tax return Reduced Dollar Limit If you received dependent care benefits that you exclude or deduct from your income, you must subtract that amount from the dollar limit that applies to you. How to amend my 2011 tax return Your reduced dollar limit is figured on Form 2441, Part III. How to amend my 2011 tax return See Dependent Care Benefits, earlier, for information on excluding or deducting these benefits. How to amend my 2011 tax return Example 1. How to amend my 2011 tax return George is a widower with one child and earns $24,000 a year. How to amend my 2011 tax return He pays work-related expenses of $2,900 for the care of his 4-year-old child and qualifies to claim the credit for child and dependent care expenses. How to amend my 2011 tax return His employer pays an additional $1,000 under a qualified dependent care benefit plan. How to amend my 2011 tax return This $1,000 is excluded from George's income. How to amend my 2011 tax return Although the dollar limit for his work-related expenses is $3,000 (one qualifying person), George figures his credit on only $2,000 of the $2,900 work-related expenses he paid. How to amend my 2011 tax return This is because his dollar limit is reduced as shown next. How to amend my 2011 tax return   George's Reduced Dollar Limit 1) Maximum allowable expenses for one qualifying person $3,000 2) Minus: Dependent care benefits George excludes from income −1,000 3) Reduced dollar limit on expenses George can use for the credit $2,000 Example 2. How to amend my 2011 tax return Randall is married and both he and his wife are employed. How to amend my 2011 tax return Each has earned income in excess of $6,000. How to amend my 2011 tax return They have two children, Anne and Andy, ages 2 and 4, who attend a daycare facility licensed and regulated by the state. How to amend my 2011 tax return Randall's work-related expenses are $6,000 for the year. How to amend my 2011 tax return Randall's employer has a dependent care assistance program as part of its cafeteria plan, which allows employees to make pre-tax contributions to a dependent care flexible spending arrangement. How to amend my 2011 tax return Randall has elected to take the maximum $5,000 exclusion from his salary to cover dependent care expenses through this program. How to amend my 2011 tax return Although the dollar limit for his work-related expenses is $6,000 (two or more qualifying persons), Randall figures his credit on only $1,000 of the $6,000 work-related expense paid. How to amend my 2011 tax return This is because his dollar limit is reduced as shown next. How to amend my 2011 tax return   Randall's Reduced Dollar Limit 1) Maximum allowable expenses for two qualifying persons $6,000 2) Minus: Dependent care benefits selected from employer's cafeteria plan and  excluded from Randall's income −5,000 3) Reduced dollar limit on work-related expenses Randall can use for the credit $1,000 Amount of Credit To determine the amount of your credit, multiply your work-related expenses (after applying the earned income and dollar limits) by a percentage. How to amend my 2011 tax return This percentage depends on your adjusted gross income shown on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37. How to amend my 2011 tax return The following table shows the percentage to use based on adjusted gross income. How to amend my 2011 tax return   IF your adjusted gross income is: THEN the       Over:       But not over:   percentage is:       $0   —   $15,000   35%       15,000   —   17,000   34%       17,000   —   19,000   33%       19,000   —   21,000   32%       21,000   —   23,000   31%       23,000   —   25,000   30%       25,000   —   27,000   29%       27,000   —   29,000   28%       29,000   —   31,000   27%       31,000   —   33,000   26%       33,000   —   35,000   25%       35,000   —   37,000   24%       37,000   —   39,000   23%       39,000   —   41,000   22%       41,000   —   43,000   21%       43,000   —   No limit   20%   To qualify for the credit, you must have one or more qualifying persons. How to amend my 2011 tax return You should show the expenses for each person on Form 2441, line 2, column (c). How to amend my 2011 tax return However, it is possible a qualifying person could have no expenses and a second qualifying person could have expenses exceeding $3,000. How to amend my 2011 tax return You should list -0- for the one person and the actual amount for the second person. How to amend my 2011 tax return The $6,000 limit that applies to two or more qualifying persons would still be used to compute your credit unless you already excluded or deducted, in Part III of Form 2441, certain dependent care benefits paid to you (or on your behalf) by your employer. How to amend my 2011 tax return Example. How to amend my 2011 tax return Roger and Megan Paris have two qualifying children. How to amend my 2011 tax return They received $1,000 of dependent care benefits from Megan's employer during 2013, but they incurred a total of $19,500 of child and dependent care expenses. How to amend my 2011 tax return They complete Part III of Form 2441 to exclude the $1,000 from their taxable income (offsetting $1,000 of their expenses). How to amend my 2011 tax return Roger and Megan continue to line 27 to figure their credit using the remaining $18,500 of expenses. How to amend my 2011 tax return Line 30 tells them to complete line 2 without including any dependent care benefits. How to amend my 2011 tax return They complete line 2 of Form 2441, listing both Susan and James, as shown in the Line 2 example above. How to amend my 2011 tax return Line 2 Example (a) Qualifying person's name (b) Qualifying person's social security number (c) Qualified expenses you incurred and paid in 2013 for the person listed in column (a) First Last Susan Paris 123-00-6789 -0- James Paris 987-00-4321 18,500. How to amend my 2011 tax return 00 All of Susan's expenses were covered by the $1,000 of employer-provided dependent care benefits. How to amend my 2011 tax return However, their son James has special needs and they paid $18,500 for his care. How to amend my 2011 tax return Line 3 imposes a $5,000 limit for two or more children ($6,000 limit, minus $1,000 already excluded from income = $5,000) and Roger and Megan continue to complete the form. How to amend my 2011 tax return Even though line 2 indicates one of the Paris children did not have any dependent care expenses, it does not change the fact that they had two qualifying children for the purposes of Form 2441. How to amend my 2011 tax return Payments for prior year's expenses. How to amend my 2011 tax return   If you had work-related expenses in 2012 that you paid in 2013, you may be able to increase the credit on your 2013 return. How to amend my 2011 tax return Attach a statement to your form showing how you figured the additional amount from 2012. How to amend my 2011 tax return Then enter “CPYE” (Credit for Prior Year Expenses) and the amount of the credit on the dotted line next to line 9 on Form 2441. How to amend my 2011 tax return Also enter the name and taxpayer identification number of the person for whom you paid the prior year's expenses. How to amend my 2011 tax return Then add this credit to the amount on line 9, and replace the amount on line 9 with the total. How to amend my 2011 tax return See Worksheet A. How to amend my 2011 tax return Example. How to amend my 2011 tax return In 2012, Sam and Kate had childcare expenses of $2,600 for their 12-year-old child. How to amend my 2011 tax return Of the $2,600, they paid $2,000 in 2012 and $600 in 2013. How to amend my 2011 tax return Their adjusted gross income for 2012 was $30,000. How to amend my 2011 tax return Sam's earned income of $14,000 was less than Kate's earned income. How to amend my 2011 tax return A credit for their 2012 expenses paid in 2013 is not allowed in 2012. How to amend my 2011 tax return It is allowed for the 2013 tax year, but they must use their adjusted gross income for 2012 to compute the amount. How to amend my 2011 tax return The filled-in Worksheet A they used to figure this credit is shown later. How to amend my 2011 tax return Sam and Kate add the $162 from line 13 of this worksheet to their 2013 credit and enter the total on their Form 2441, line 9. How to amend my 2011 tax return They enter “CPYE $162” and their child's name and SSN in the space to the left of line 9. How to amend my 2011 tax return Worksheet A. How to amend my 2011 tax return Worksheet for 2012 Expenses Paid in 2013 Use this worksheet to figure the credit you may claim for 2012 expenses paid in 2013. How to amend my 2011 tax return 1. How to amend my 2011 tax return   Enter your 2012 qualified expenses paid in 2012 1. How to amend my 2011 tax return     2. How to amend my 2011 tax return   Enter your 2012 qualified expenses paid in 2013 2. How to amend my 2011 tax return     3. How to amend my 2011 tax return   Add the amounts on lines 1 and 2 3. How to amend my 2011 tax return     4. How to amend my 2011 tax return   Enter $3,000 if care was for one qualifying person ($6,000 if for two or more) 4. How to amend my 2011 tax return     5. How to amend my 2011 tax return   Enter any dependent care benefits received for 2012 and excluded from your income (from your 2012 Form 2441, line 25) 5. How to amend my 2011 tax return     6. How to amend my 2011 tax return   Subtract the amount on line 5 from the amount on line 4 and enter the result 6. How to amend my 2011 tax return     7. How to amend my 2011 tax return   Compare your earned income for 2012 and your spouse's earned income for 2012 and enter the smaller amount 7. How to amend my 2011 tax return     8. How to amend my 2011 tax return   Compare the amounts on lines 3, 6, and 7 and enter the smallest amount 8. How to amend my 2011 tax return     9. How to amend my 2011 tax return   Enter the amount on which you figured the credit for 2012 (from your 2012 Form 2441, line 6) 9. How to amend my 2011 tax return     10. How to amend my 2011 tax return   Subtract the amount on line 9 from the amount on line 8 and enter the result. How to amend my 2011 tax return If zero or less, stop here. How to amend my 2011 tax return You cannot increase your 2013 credit by any previous year's expenses 10. How to amend my 2011 tax return     11. How to amend my 2011 tax return   Enter your 2012 adjusted gross income (from your 2012 Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37) 11. How to amend my 2011 tax return     12. How to amend my 2011 tax return   Find your 2012 adjusted gross income in the table below and enter the corresponding decimal amount here 12. How to amend my 2011 tax return             IF your 2012 adjusted gross income is:   THEN the decimal                 Over:   But not over:     amount is:                 $0 — $15,000     . How to amend my 2011 tax return 35                 15,000 — 17,000     . How to amend my 2011 tax return 34                 17,000 — 19,000     . How to amend my 2011 tax return 33                 19,000 — 21,000     . How to amend my 2011 tax return 32                 21,000 — 23,000     . How to amend my 2011 tax return 31                 23,000 — 25,000     . How to amend my 2011 tax return 30                 25,000 — 27,000     . How to amend my 2011 tax return 29                 27,000 — 29,000     . How to amend my 2011 tax return 28                 29,000 — 31,000     . How to amend my 2011 tax return 27                 31,000 — 33,000     . How to amend my 2011 tax return 26                 33,000 — 35,000     . How to amend my 2011 tax return 25                 35,000 — 37,000     . How to amend my 2011 tax return 24                 37,000 — 39,000     . How to amend my 2011 tax return 23                 39,000 — 41,000     . How to amend my 2011 tax return 22                 41,000 — 43,000     . How to amend my 2011 tax return 21                 43,000 — No limit     . How to amend my 2011 tax return 20           13. How to amend my 2011 tax return   Multiply line 10 by line 12. How to amend my 2011 tax return Add this amount to your 2013 credit and enter the total on your 2013 Form 2441, line 9. How to amend my 2011 tax return Enter the following on the dotted line next to line 9 of Form 2441: “CPYE” The amount of this credit for a prior year's expenses           Also, attach a statement to your tax return showing the name and taxpayer identification number of the person for whom you paid the prior year's expenses and how you figured the credit 13. How to amend my 2011 tax return       Worksheet A. How to amend my 2011 tax return Filled-in Worksheet for 2012 Expenses Paid in 2013 Use this worksheet to figure the credit you may claim for 2012 expenses paid in 2013. How to amend my 2011 tax return 1. How to amend my 2011 tax return   Enter your 2012 qualified expenses paid in 2012 1. How to amend my 2011 tax return   $2,000 2. How to amend my 2011 tax return   Enter your 2012 qualified expenses paid in 2013 2. How to amend my 2011 tax return   600 3. How to amend my 2011 tax return   Add the amounts on lines 1 and 2 3. How to amend my 2011 tax return   2,600 4. How to amend my 2011 tax return   Enter $3,000 if care was for one qualifying person ($6,000 if for two or more) 4. How to amend my 2011 tax return   3,000 5. How to amend my 2011 tax return   Enter any dependent care benefits received for 2012 and excluded from your income (from your 2012 Form 2441, line 25) 5. How to amend my 2011 tax return   0 6. How to amend my 2011 tax return   Subtract the amount on line 5 from the amount on line 4 and enter the result 6. How to amend my 2011 tax return   3,000 7. How to amend my 2011 tax return   Compare your earned income for 2012 and your spouse's earned income for 2012 and enter the smaller amount 7. How to amend my 2011 tax return   14,000 8. How to amend my 2011 tax return   Compare the amounts on lines 3, 6, and 7 and enter the smallest amount 8. How to amend my 2011 tax return   2,600 9. How to amend my 2011 tax return   Enter the amount on which you figured the credit for 2012 (from your 2012 Form 2441, line 6) 9. How to amend my 2011 tax return   2,000 10. How to amend my 2011 tax return   Subtract the amount on line 9 from the amount on line 8 and enter the result. How to amend my 2011 tax return If zero or less, stop here. How to amend my 2011 tax return You cannot increase your 2013 credit by any previous year's expenses 10. How to amend my 2011 tax return   600 11. How to amend my 2011 tax return   Enter your 2012 adjusted gross income (from your 2012 Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37) 11. How to amend my 2011 tax return   30,000 12. How to amend my 2011 tax return   Find your 2012 adjusted gross income in the table below and enter the corresponding decimal amount here 12. How to amend my 2011 tax return   . How to amend my 2011 tax return 27         IF your 2012 adjusted gross income is:   THEN the decimal                 Over   But not over     amount is:                 $0 — $15,000     . How to amend my 2011 tax return 35                 15,000 — 17,000     . How to amend my 2011 tax return 34                 17,000 — 19,000     . How to amend my 2011 tax return 33                 19,000 — 21,000     . How to amend my 2011 tax return 32                 21,000 — 23,000     . How to amend my 2011 tax return 31                 23,000 — 25,000     . How to amend my 2011 tax return 30                 25,000 — 27,000     . How to amend my 2011 tax return 29                 27,000 — 29,000     . How to amend my 2011 tax return 28                 29,000 — 31,000     . How to amend my 2011 tax return 27                 31,000 — 33,000     . How to amend my 2011 tax return 26                 33,000 — 35,000     . How to amend my 2011 tax return 25                 35,000 — 37,000     . How to amend my 2011 tax return 24                 37,000 — 39,000     . How to amend my 2011 tax return 23                 39,000 — 41,000     . How to amend my 2011 tax return 22                 41,000 — 43,000     . How to amend my 2011 tax return 21                 43,000 — No limit     . How to amend my 2011 tax return 20           13. How to amend my 2011 tax return   Multiply line 10 by line 12. How to amend my 2011 tax return Add this amount to your 2013 credit and enter the total on your 2013 Form 2441, line 9. How to amend my 2011 tax return Enter the following on the dotted line next to line 9 of Form 2441: “CPYE” The amount of this credit for a prior year's expenses             Also, attach a statement to your tax return showing the name and taxpayer identification number of the person for whom you paid the prior year's expenses and how you figured the credit 13. How to amend my 2011 tax return   $162   How To Claim the Credit To claim the credit, you can file Form 1040, Form 1040A, or Form 1040NR. How to amend my 2011 tax return You cannot claim the credit on Form 1040EZ or Form 1040NR-EZ. How to amend my 2011 tax return Form 1040, Form 1040A, or Form 1040NR. How to amend my 2011 tax return    You must complete Form 2441 and attach it to your Form 1040, Form 1040A, or Form 1040NR. How to amend my 2011 tax return Enter the credit on your Form 1040, line 48; Form 1040A, line 29; or Form 1040NR, line 46. How to amend my 2011 tax return Limit on credit. How to amend my 2011 tax return    The amount of credit you can claim is limited to your tax. How to amend my 2011 tax return For more information, see the Instructions for Form 2441. How to amend my 2011 tax return Tax credit not refundable. How to amend my 2011 tax return   You cannot get a refund for any part of the credit that is more than this limit. How to amend my 2011 tax return Recordkeeping. How to amend my 2011 tax return You should keep records of your work-related expenses. How to amend my 2011 tax return Also, if your dependent or spouse is not able to care for himself or herself, your records should show both the nature and length of the disability. How to amend my 2011 tax return Other records you should keep to support your claim for the credit are described under Provider Identification Test, earlier. How to amend my 2011 tax return Employment Taxes for Household Employers If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. How to amend my 2011 tax return If you are a household employer, you will need an employer identification number (EIN) and you may have to pay employment taxes. How to amend my 2011 tax return If the individuals who work in your home are self-employed, you are not liable for any of the taxes discussed in this section. How to amend my 2011 tax return Self-employed persons who are in business for themselves are not household employees. How to amend my 2011 tax return Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business. How to amend my 2011 tax return If you use a placement agency that exercises control over what work is done and how it will be done by a babysitter or companion who works in your home, the worker is not your employee. How to amend my 2011 tax return This control could include providing rules of conduct and appearance and requiring regular reports. How to amend my 2011 tax return In this case, you do not have to pay employment taxes. How to amend my 2011 tax return But, if an agency merely gives you a list of sitters and you hire one from that list, and pay the sitter directly, the sitter may be your employee. How to amend my 2011 tax return If you have a household employee, you may be subject to: Social security and Medicare taxes, Federal unemployment tax, and Federal income tax withholding. How to amend my 2011 tax return Social security and Medicare taxes are generally withheld from the employee's pay and matched by the employer. How to amend my 2011 tax return Federal unemployment (FUTA) tax is paid by the employer only and provides for payments of unemployment compensation to workers who have lost their jobs. How to amend my 2011 tax return Federal income tax is withheld from the employee's total pay if the employee asks you to do so and you agree. How to amend my 2011 tax return For more information on a household employer's tax responsibilities, see Publication 926 and Schedule H (Form 1040) and its instructions. How to amend my 2011 tax return State employment tax. How to amend my 2011 tax return   You may also have to pay state unemployment tax. How to amend my 2011 tax return Contact your state unemployment tax office for information. How to amend my 2011 tax return You should also find out whether you need to pay or collect other state employment taxes or carry worker's compensation insurance. How to amend my 2011 tax return For a list of state unemployment tax agencies, visit the U. How to amend my 2011 tax return S. How to amend my 2011 tax return Department of Labor's website. How to amend my 2011 tax return To find that website, use the link in Publication 926 or search online. How to amend my 2011 tax return How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. How to amend my 2011 tax return Free help with your tax return. How to amend my 2011 tax return   You can get free help preparing your return nationwide from IRS-certified volunteers. How to amend my 2011 tax return The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. How to amend my 2011 tax return The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. How to amend my 2011 tax return Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. How to amend my 2011 tax return In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. How to amend my 2011 tax return To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. How to amend my 2011 tax return gov, download the IRS2Go app, or call 1-800-906-9887. How to amend my 2011 tax return   As part of the TCE program, AARP offers the Tax-Aide counseling program. How to amend my 2011 tax return To find the nearest AARP Tax-Aide site, visit AARP's website at www. How to amend my 2011 tax return aarp. How to amend my 2011 tax return org/money/taxaide or call 1-888-227-7669. How to amend my 2011 tax return For more information on these programs, go to IRS. How to amend my 2011 tax return gov and enter “VITA” in the search box. How to amend my 2011 tax return Internet. How to amend my 2011 tax return    IRS. How to amend my 2011 tax return gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. How to amend my 2011 tax return Download the free IRS2Go app from the iTunes app store or from Google Play. How to amend my 2011 tax return Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. How to amend my 2011 tax return Check the status of your 2013 refund with the Where's My Refund? application on IRS. How to amend my 2011 tax return gov or download the IRS2Go app and select the Refund Status option. How to amend my 2011 tax return The IRS issues more than 9 out of 10 refunds in less than 21 days. How to amend my 2011 tax return Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. How to amend my 2011 tax return You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. How to amend my 2011 tax return The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. How to amend my 2011 tax return Use the Interactive Tax Assistant (ITA) to research your tax questions. How to amend my 2011 tax return No need to wait on the phone or stand in line. How to amend my 2011 tax return The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. How to amend my 2011 tax return When you reach the response screen, you can print the entire interview and the final response for your records. How to amend my 2011 tax return New subject areas are added on a regular basis. How to amend my 2011 tax return  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. How to amend my 2011 tax return gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. How to amend my 2011 tax return You can use the IRS Tax Map, to search publications and instructions by topic or keyword. How to amend my 2011 tax return The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. How to amend my 2011 tax return When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. How to amend my 2011 tax return Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. How to amend my 2011 tax return You can also ask the IRS to mail a return or an account transcript to you. How to amend my 2011 tax return Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. How to amend my 2011 tax return gov or by calling 1-800-908-9946. How to amend my 2011 tax return Tax return and tax account transcripts are generally available for the current year and the past three years. How to amend my 2011 tax return Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. How to amend my 2011 tax return Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. How to amend my 2011 tax return If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. How to amend my 2011 tax return Check the status of your amended return using Where's My Amended Return? Go to IRS. How to amend my 2011 tax return gov and enter Where's My Amended Return? in the search box. How to amend my 2011 tax return You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. How to amend my 2011 tax return It can take up to 3 weeks from the date you mailed it to show up in our system. How to amend my 2011 tax return Make a payment using one of several safe and convenient electronic payment options available on IRS. How to amend my 2011 tax return gov. How to amend my 2011 tax return Select the Payment tab on the front page of IRS. How to amend my 2011 tax return gov for more information. How to amend my 2011 tax return Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. How to amend my 2011 tax return Figure your income tax withholding with the IRS Withholding Calculator on IRS. How to amend my 2011 tax return gov. How to amend my 2011 tax return Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. How to amend my 2011 tax return Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. How to amend my 2011 tax return gov. How to amend my 2011 tax return Request an Electronic Filing PIN by going to IRS. How to amend my 2011 tax return gov and entering Electronic Filing PIN in the search box. How to amend my 2011 tax return Download forms, instructions and publications, including accessible versions for people with disabilities. How to amend my 2011 tax return Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. How to amend my 2011 tax return gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. How to amend my 2011 tax return An employee can answer questions about your tax account or help you set up a payment plan. How to amend my 2011 tax return Before you visit, check the Office Locator on IRS. How to amend my 2011 tax return gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. How to amend my 2011 tax return If you have a special need, such as a disability, you can request an appointment. How to amend my 2011 tax return Call the local number listed in the Office Locator, or look in the phone book under Unit
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The How To Amend My 2011 Tax Return

How to amend my 2011 tax return Publication 537 - Main Content Table of Contents What Is an Installment Sale?Special rule. How to amend my 2011 tax return General RulesFiguring Installment Sale Income Reporting Installment Sale Income Other RulesElecting Out of the Installment Method Payments Received or Considered Received Escrow Account Depreciation Recapture Income Sale to a Related Person Like-Kind Exchange Contingent Payment Sale Single Sale of Several Assets Sale of a Business Unstated Interest and Original Issue Discount (OID) Disposition of an Installment Obligation Repossession Interest on Deferred Tax Reporting an Installment SaleRelated person. How to amend my 2011 tax return Several assets. How to amend my 2011 tax return Special situations. How to amend my 2011 tax return Schedule D (Form 1040). How to amend my 2011 tax return Form 4797. How to amend my 2011 tax return How To Get Tax Help What Is an Installment Sale? An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. How to amend my 2011 tax return The rules for installment sales do not apply if you elect not to use the installment method (see Electing Out of the Installment Method under Other Rules, later) or the transaction is one for which the installment method may not apply. How to amend my 2011 tax return The installment sales method cannot be used for the following. How to amend my 2011 tax return Sale of inventory. How to amend my 2011 tax return   The regular sale of inventory of personal property does not qualify as an installment sale even if you receive a payment after the year of sale. How to amend my 2011 tax return See Sale of a Business under Other Rules, later. How to amend my 2011 tax return Dealer sales. How to amend my 2011 tax return   Sales of personal property by a person who regularly sells or otherwise disposes of the same type of personal property on the installment plan are not installment sales. How to amend my 2011 tax return This rule also applies to real property held for sale to customers in the ordinary course of a trade or business. How to amend my 2011 tax return However, the rule does not apply to an installment sale of property used or produced in farming. How to amend my 2011 tax return Special rule. How to amend my 2011 tax return   Dealers of time-shares and residential lots can treat certain sales as installment sales and report them under the installment method if they elect to pay a special interest charge. How to amend my 2011 tax return For more information, see section 453(l). How to amend my 2011 tax return Stock or securities. How to amend my 2011 tax return   You cannot use the installment method to report gain from the sale of stock or securities traded on an established securities market. How to amend my 2011 tax return You must report the entire gain on the sale in the year in which the trade date falls. How to amend my 2011 tax return Installment obligation. How to amend my 2011 tax return   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. How to amend my 2011 tax return General Rules 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. How to amend my 2011 tax return See Electing Out of the Installment Method under Other Rules, later, for information on recognizing the entire gain in the year of sale. How to amend my 2011 tax return Sale at a loss. How to amend my 2011 tax return   If your sale results in a loss, you cannot use the installment method. How to amend my 2011 tax return If the loss is on an installment sale of business or investment property, you can deduct it only in the tax year of sale. How to amend my 2011 tax return Unstated interest. How to amend my 2011 tax return   If your sale calls for payments in a later year and the sales contract provides for little or no interest, you may have to figure unstated interest, even if you have a loss. How to amend my 2011 tax return See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. How to amend my 2011 tax return Figuring Installment Sale Income You can use the following discussions or Form 6252 to help you determine gross profit, contract price, gross profit percentage, and installment sale income. How to amend my 2011 tax return Each payment on an installment sale usually consists of the following three parts. How to amend my 2011 tax return Interest income. How to amend my 2011 tax return Return of your adjusted basis in the property. How to amend my 2011 tax return Gain on the sale. How to amend my 2011 tax return 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. How to amend my 2011 tax return You do not include in income the part that is the return of your basis in the property. How to amend my 2011 tax return Basis is the amount of your investment in the property for installment sale purposes. How to amend my 2011 tax return Interest Income You must report interest as ordinary income. How to amend my 2011 tax return Interest is generally not included in a down payment. How to amend my 2011 tax return 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. How to amend my 2011 tax return Interest provided in the agreement is called stated interest. How to amend my 2011 tax return If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. How to amend my 2011 tax return See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. How to amend my 2011 tax return Adjusted Basis and Installment Sale Income (Gain on Sale) 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. How to amend my 2011 tax return A tax-free return of your adjusted basis in the property, and Your gain (referred to as installment sale income on Form 6252). How to amend my 2011 tax return Figuring adjusted basis for installment sale purposes. How to amend my 2011 tax return   You can use Worksheet A to figure your adjusted basis in the property for installment sale purposes. How to amend my 2011 tax return 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. How to amend my 2011 tax return Worksheet A. How to amend my 2011 tax return Figuring Adjusted Basis and Gross Profit Percentage 1. How to amend my 2011 tax return Enter the selling price for the property   2. How to amend my 2011 tax return Enter your adjusted basis for the property     3. How to amend my 2011 tax return Enter your selling expenses     4. How to amend my 2011 tax return Enter any depreciation recapture     5. How to amend my 2011 tax return Add lines 2, 3, and 4. How to amend my 2011 tax return  This is your adjusted basis for installment sale purposes   6. How to amend my 2011 tax return Subtract line 5 from line 1. How to amend my 2011 tax return If zero or less, enter -0-. How to amend my 2011 tax return  This is your gross profit     If the amount entered on line 6 is zero, stop here. How to amend my 2011 tax return You cannot use the installment method. How to amend my 2011 tax return   7. How to amend my 2011 tax return Enter the contract price for the property   8. How to amend my 2011 tax return Divide line 6 by line 7. How to amend my 2011 tax return This is your gross profit percentage   Selling price. How to amend my 2011 tax return   The selling price is the total cost of the property to the buyer and includes any of the following. How to amend my 2011 tax return Any money you are to receive. How to amend my 2011 tax return The fair market value (FMV) of any property you are to receive (FMV is discussed in Property Used As a Payment under Other Rules, later). How to amend my 2011 tax return 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). How to amend my 2011 tax return Any of your selling expenses the buyer pays. How to amend my 2011 tax return   Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. How to amend my 2011 tax return Adjusted basis for installment sale purposes. How to amend my 2011 tax return   Your adjusted basis is the total of the following three items. How to amend my 2011 tax return Adjusted basis. How to amend my 2011 tax return Selling expenses. How to amend my 2011 tax return Depreciation recapture. How to amend my 2011 tax return Adjusted basis. How to amend my 2011 tax return   Basis is your investment in the property for installment sale purposes. How to amend my 2011 tax return The way you figure basis depends on how you acquire the property. How to amend my 2011 tax return The basis of property you buy is generally its cost. How to amend my 2011 tax return The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. How to amend my 2011 tax return   While you own property, various events may change your original basis. How to amend my 2011 tax return Some events, such as adding rooms or making permanent improvements, increase basis. How to amend my 2011 tax return Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. How to amend my 2011 tax return The result is adjusted basis. How to amend my 2011 tax return   For more information on how to figure basis and adjusted basis, see Publication 551. How to amend my 2011 tax return For more information regarding your basis in property you inherited from someone who died in 2010 and whose executor filed Form 8939, Allocation of Increase In Basis for Property Acquired From a Decedent, see Publication 4895. How to amend my 2011 tax return Selling expenses. How to amend my 2011 tax return   Selling expenses relate to the sale of the property. How to amend my 2011 tax return They include commissions, attorney fees, and any other expenses paid on the sale. How to amend my 2011 tax return Selling expenses are added to the basis of the sold property. How to amend my 2011 tax return Depreciation recapture. How to amend my 2011 tax return   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. How to amend my 2011 tax return See Depreciation Recapture Income under Other Rules, later. How to amend my 2011 tax return Gross profit. How to amend my 2011 tax return   Gross profit is the total gain you report on the installment method. How to amend my 2011 tax return   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. How to amend my 2011 tax return If the property you sold was your home, subtract from the gross profit any gain you can exclude. How to amend my 2011 tax return See Sale of Your Home , later, under Reporting Installment Sale Income. How to amend my 2011 tax return Contract price. How to amend my 2011 tax return   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. How to amend my 2011 tax return Gross profit percentage. How to amend my 2011 tax return   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. How to amend my 2011 tax return This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. How to amend my 2011 tax return   The gross profit percentage generally remains the same for each payment you receive. How to amend my 2011 tax return However, see the Example under Selling Price Reduced, later, for a situation where the gross profit percentage changes. How to amend my 2011 tax return Example. How to amend my 2011 tax return You sell property at a contract price of $6,000 and your gross profit is $1,500. How to amend my 2011 tax return Your gross profit percentage is 25% ($1,500 ÷ $6,000). How to amend my 2011 tax return 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. How to amend my 2011 tax return The remainder (balance) of each payment is the tax-free return of your adjusted basis. How to amend my 2011 tax return Amount to report as installment sale income. How to amend my 2011 tax return   Multiply the payments you receive each year (less interest) by the gross profit percentage. How to amend my 2011 tax return The result is your installment sale income for the tax year. How to amend my 2011 tax return In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. How to amend my 2011 tax return A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. How to amend my 2011 tax return For a detailed discussion, see Payments Received or Considered Received under Other Rules, later. How to amend my 2011 tax return Selling Price Reduced If the selling price is reduced at a later date, the gross profit on the sale also will change. How to amend my 2011 tax return You then must refigure the gross profit percentage for the remaining payments. How to amend my 2011 tax return Refigure your gross profit using Worksheet B. How to amend my 2011 tax return You will spread any remaining gain over future installments. How to amend my 2011 tax return Worksheet B. How to amend my 2011 tax return New Gross Profit Percentage — Selling Price Reduced 1. How to amend my 2011 tax return Enter the reduced selling  price for the property   2. How to amend my 2011 tax return Enter your adjusted  basis for the  property     3. How to amend my 2011 tax return Enter your selling  expenses     4. How to amend my 2011 tax return Enter any depreciation  recapture     5. How to amend my 2011 tax return Add lines 2, 3, and 4. How to amend my 2011 tax return   6. How to amend my 2011 tax return Subtract line 5 from line 1. How to amend my 2011 tax return  This is your adjusted  gross profit   7. How to amend my 2011 tax return Enter any installment sale  income reported in  prior year(s)   8. How to amend my 2011 tax return Subtract line 7 from line 6   9. How to amend my 2011 tax return Future installments   10. How to amend my 2011 tax return Divide line 8 by line 9. How to amend my 2011 tax return  This is your new gross profit percentage*   * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. How to amend my 2011 tax return Example. How to amend my 2011 tax return In 2011, you sold land with a basis of $40,000 for $100,000. How to amend my 2011 tax return Your gross profit was $60,000. How to amend my 2011 tax return You received a $20,000 down payment and the buyer's note for $80,000. How to amend my 2011 tax return The note provides for four annual payments of $20,000 each, plus 8% interest, beginning in 2012. How to amend my 2011 tax return Your gross profit percentage is 60%. How to amend my 2011 tax return You reported a gain of $12,000 on each payment received in 2011 and 2012. How to amend my 2011 tax return In 2013, you and the buyer agreed to reduce the purchase price to $85,000 and payments during 2013, 2014, and 2015 are reduced to $15,000 for each year. How to amend my 2011 tax return The new gross profit percentage, 46. How to amend my 2011 tax return 67%, is figured on Example—Worksheet B. How to amend my 2011 tax return You will report a gain of $7,000 (46. How to amend my 2011 tax return 67% of $15,000) on each of the $15,000 installments due in 2013, 2014, and 2015. How to amend my 2011 tax return Example — Worksheet B. How to amend my 2011 tax return New Gross Profit Percentage — Selling Price Reduced 1. How to amend my 2011 tax return Enter the reduced selling  price for the property 85,000 2. How to amend my 2011 tax return Enter your adjusted  basis for the  property 40,000   3. How to amend my 2011 tax return Enter your selling  expenses -0-   4. How to amend my 2011 tax return Enter any depreciation  recapture -0-   5. How to amend my 2011 tax return Add lines 2, 3, and 4. How to amend my 2011 tax return 40,000 6. How to amend my 2011 tax return Subtract line 5 from line 1. How to amend my 2011 tax return  This is your adjusted  gross profit 45,000 7. How to amend my 2011 tax return Enter any installment sale  income reported in  prior year(s) 24,000 8. How to amend my 2011 tax return Subtract line 7 from line 6 21,000 9. How to amend my 2011 tax return Future installments 45,000 10. How to amend my 2011 tax return Divide line 8 by line 9. How to amend my 2011 tax return  This is your new gross profit percentage* 46. How to amend my 2011 tax return 67% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. How to amend my 2011 tax return Reporting Installment Sale Income Generally, you will use Form 6252 to report installment sale income from casual sales of real or personal property during the tax year. How to amend my 2011 tax return You also will have to report the installment sale income on Schedule D (Form 1040), Capital Gains and Losses, or Form 4797, or both. How to amend my 2011 tax return See Schedule D (Form 1040) and Form 4797 , later. How to amend my 2011 tax return If the property was your main home, you may be able to exclude part or all of the gain. How to amend my 2011 tax return See Sale of Your Home , later. How to amend my 2011 tax return Form 6252 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. How to amend my 2011 tax return Attach it to your tax return for each year. How to amend my 2011 tax return Form 6252 will help you determine the gross profit, contract price, gross profit percentage, and installment sale income. How to amend my 2011 tax return Which parts to complete. How to amend my 2011 tax return   Which part to complete depends on whether you are filing the form for the year of sale or a later year. How to amend my 2011 tax return Year of sale. How to amend my 2011 tax return   Complete lines 1 through 4, Part I, and Part II. How to amend my 2011 tax return If you sold property to a related party during the year, also complete Part III. How to amend my 2011 tax return Later years. How to amend my 2011 tax return   Complete lines 1 through 4 and Part II for any year in which you receive a payment from an installment sale. How to amend my 2011 tax return   If you sold a marketable security to a related party after May 14, 1980, and before January 1, 1987, complete Form 6252 for each year of the installment agreement, even if you did not receive a payment. How to amend my 2011 tax return (After December 31, 1986, the installment method is not available for the sale of marketable securities. How to amend my 2011 tax return ) Complete lines 1 through 4 and Part II for any year in which you receive a payment from the sale. How to amend my 2011 tax return Complete Part III unless you received the final payment during the tax year. How to amend my 2011 tax return   If you sold property other than a marketable security to a related party after May 14, 1980, complete Form 6252 for the year of sale and for 2 years after the year of sale, even if you did not receive a payment. How to amend my 2011 tax return Complete lines 1 through 4 and Part II for any year during this 2-year period in which you receive a payment from the sale. How to amend my 2011 tax return Complete Part III for the 2 years after the year of sale unless you received the final payment during the tax year. How to amend my 2011 tax return Schedule D (Form 1040) Enter the gain figured on Form 6252 (line 26) for personal-use property (capital assets) on Schedule D (Form 1040), as a short-term gain (line 4) or long-term gain (line 11). How to amend my 2011 tax return If your gain from the installment sale qualifies for long-term capital gain treatment in the year of sale, it will continue to qualify in later tax years. How to amend my 2011 tax return Your gain is long-term if you owned the property for more than 1 year when you sold it. How to amend my 2011 tax return Form 4797 An installment sale of property used in your business or that earns rent or royalty income may result in a capital gain, an ordinary gain, or both. How to amend my 2011 tax return All or part of any gain from the disposition of the property may be ordinary gain from depreciation recapture. How to amend my 2011 tax return For trade or business property held for more than 1 year, enter the amount from line 26 of Form 6252 on Form 4797, line 4. How to amend my 2011 tax return If the property was held 1 year or less or you have an ordinary gain from the sale of a noncapital asset (even if the holding period is more than 1 year), enter this amount on Form 4797, line 10, and write “From Form 6252. How to amend my 2011 tax return ” Sale of Your Home If you sell your home, you may be able to exclude all or part of the gain on the sale. How to amend my 2011 tax return See Publication 523 for information about excluding the gain. How to amend my 2011 tax return If the sale is an installment sale, any gain you exclude is not included in gross profit when figuring your gross profit percentage. How to amend my 2011 tax return Seller-financed mortgage. How to amend my 2011 tax return   If you finance the sale of your home to an individual, both you and the buyer may have to follow special reporting procedures. How to amend my 2011 tax return   When you report interest income received from a buyer who uses the property as a personal residence, write the buyer's name, address, and social security number (SSN) on line 1 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. How to amend my 2011 tax return   When deducting the mortgage interest, the buyer must write your name, address, and SSN on line 11 of Schedule A (Form 1040), Itemized Deductions. How to amend my 2011 tax return   If either person fails to include the other person's SSN, a $50 penalty will be assessed. How to amend my 2011 tax return Other Rules The rules discussed in this part of the publication apply only in certain circumstances or to certain types of property. How to amend my 2011 tax return The following topics are discussed. How to amend my 2011 tax return Electing out of the installment method. How to amend my 2011 tax return Payments received or considered received. How to amend my 2011 tax return Escrow account. How to amend my 2011 tax return Depreciation recapture income. How to amend my 2011 tax return Sale to a related person. How to amend my 2011 tax return Like-kind exchange. How to amend my 2011 tax return Contingent payment sale. How to amend my 2011 tax return Single sale of several assets. How to amend my 2011 tax return Sale of a business. How to amend my 2011 tax return Unstated interest and original issue discount. How to amend my 2011 tax return Disposition of an installment obligation. How to amend my 2011 tax return Repossession. How to amend my 2011 tax return Interest on deferred tax. How to amend my 2011 tax return Electing Out of the Installment Method 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. How to amend my 2011 tax return To figure the amount of gain to report, use the fair market value (FMV) of the buyer's installment obligation that represents the buyer's debt to you. How to amend my 2011 tax return Notes, mortgages, and land contracts are examples of obligations that are included at FMV. How to amend my 2011 tax return You must figure the FMV of the buyer's installment obligation, whether or not you would actually be able to sell it. How to amend my 2011 tax return If you use the cash method of accounting, the FMV of the obligation will never be considered to be less than the FMV of the property sold (minus any other consideration received). How to amend my 2011 tax return Example. How to amend my 2011 tax return You sold a parcel of land for $50,000. How to amend my 2011 tax return You received a $10,000 down payment and will receive the balance over the next 10 years at $4,000 a year, plus 8% interest. How to amend my 2011 tax return The buyer gave you a note for $40,000. How to amend my 2011 tax return The note had an FMV of $40,000. How to amend my 2011 tax return You paid a commission of 6%, or $3,000, to a broker for negotiating the sale. How to amend my 2011 tax return The land cost $25,000, and you owned it for more than one year. How to amend my 2011 tax return You decide to elect out of the installment method and report the entire gain in the year of sale. How to amend my 2011 tax return Gain realized:     Selling price $50,000 Minus: Property's adj. How to amend my 2011 tax return basis $25,000     Commission 3,000 28,000 Gain realized $22,000 Gain recognized in year of sale:   Cash $10,000 Market value of note 40,000 Total realized in year of sale $50,000 Minus: Property's adj. How to amend my 2011 tax return basis $25,000     Commission 3,000 28,000 Gain recognized $22,000 The recognized gain of $22,000 is long-term capital gain. How to amend my 2011 tax return You include the entire gain in income in the year of sale, so you do not include in income any principal payments you receive in later tax years. How to amend my 2011 tax return The interest on the note is ordinary income and is reported as interest income each year. How to amend my 2011 tax return How to elect out. How to amend my 2011 tax return   To make this election, do not report your sale on Form 6252. How to amend my 2011 tax return Instead, report it on Form 8949, Sales and Other Dispositions of Capital Assets, Form 4797, or both. How to amend my 2011 tax return When to elect out. How to amend my 2011 tax return   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. How to amend my 2011 tax return Automatic six-month extension. How to amend my 2011 tax return   If you timely file your tax return without making the election, you still can make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). How to amend my 2011 tax return Write “Filed pursuant to section 301. How to amend my 2011 tax return 9100-2” at the top of the amended return and file it where the original return was filed. How to amend my 2011 tax return Revoking the election. How to amend my 2011 tax return   Once made, the election can be revoked only with IRS approval. How to amend my 2011 tax return A revocation is retroactive. How to amend my 2011 tax return You will not be allowed to revoke the election if either of the following applies. How to amend my 2011 tax return One of the purposes is to avoid federal income tax. How to amend my 2011 tax return The tax year in which any payment was received has closed. How to amend my 2011 tax return 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. How to amend my 2011 tax return In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. How to amend my 2011 tax return 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. How to amend my 2011 tax return However, as discussed later, the buyer's assumption of your debt is treated as a recovery of your basis rather than as a payment in many cases. How to amend my 2011 tax return Buyer Pays Seller's Expenses 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. How to amend my 2011 tax return Include these expenses in the selling and contract prices when figuring the gross profit percentage. How to amend my 2011 tax return Buyer Assumes Mortgage If the buyer assumes or pays off your mortgage, or otherwise takes the property subject to the mortgage, the following rules apply. How to amend my 2011 tax return Mortgage not more than basis. How to amend my 2011 tax return   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. How to amend my 2011 tax return It is considered a recovery of your basis. How to amend my 2011 tax return The contract price is the selling price minus the mortgage. How to amend my 2011 tax return Example. How to amend my 2011 tax return You sell property with an adjusted basis of $19,000. How to amend my 2011 tax return You have selling expenses of $1,000. How to amend my 2011 tax return 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 12% interest) in each of the next 4 years). How to amend my 2011 tax return The selling price is $25,000 ($15,000 + $10,000). How to amend my 2011 tax return Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). How to amend my 2011 tax return The contract price is $10,000 ($25,000 − $15,000 mortgage). How to amend my 2011 tax return Your gross profit percentage is 50% ($5,000 ÷ $10,000). How to amend my 2011 tax return You report half of each $2,000 payment received as gain from the sale. How to amend my 2011 tax return You also report all interest you receive as ordinary income. How to amend my 2011 tax return Mortgage more than basis. How to amend my 2011 tax return   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. How to amend my 2011 tax return The part of the mortgage greater than your basis is treated as a payment received in the year of sale. How to amend my 2011 tax return   To figure the contract price, subtract the mortgage from the selling price. How to amend my 2011 tax return This is the total amount (other than interest) you will receive directly from the buyer. How to amend my 2011 tax return Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). How to amend my 2011 tax return The contract price is then the same as your gross profit from the sale. How to amend my 2011 tax return    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. How to amend my 2011 tax return Example. How to amend my 2011 tax return The selling price for your property is $9,000. How to amend my 2011 tax return The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. How to amend my 2011 tax return Your adjusted basis in the property is $4,400. How to amend my 2011 tax return You have selling expenses of $600, for a total installment sale basis of $5,000. How to amend my 2011 tax return The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). How to amend my 2011 tax return This amount is included in the contract price and treated as a payment received in the year of sale. How to amend my 2011 tax return 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%. How to amend my 2011 tax return Report 100% of each payment (less interest) as gain from the sale. How to amend my 2011 tax return 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. How to amend my 2011 tax return Mortgage Canceled If the buyer of your property is the person who holds the mortgage on it, your debt is canceled, not assumed. How to amend my 2011 tax return You are considered to receive a payment equal to the outstanding canceled debt. How to amend my 2011 tax return Example. How to amend my 2011 tax return Mary Jones loaned you $45,000 in 2009 in exchange for a note and a mortgage in a tract of land you owned. How to amend my 2011 tax return On April 4, 2013, she bought the land for $70,000. How to amend my 2011 tax return At that time, $30,000 of her loan to you was outstanding. How to amend my 2011 tax return She agreed to forgive this $30,000 debt and to pay you $20,000 (plus interest) on August 1, 2013, and $20,000 on August 1, 2014. How to amend my 2011 tax return She did not assume an existing mortgage. How to amend my 2011 tax return She canceled the $30,000 debt you owed her. How to amend my 2011 tax return You are considered to have received a $30,000 payment at the time of the sale. How to amend my 2011 tax return Buyer Assumes Other Debts 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. How to amend my 2011 tax return If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. How to amend my 2011 tax return Compare the debt to your installment sale basis in the property being sold. How to amend my 2011 tax return If the debt is less than your installment sale basis, none of it is treated as a payment. How to amend my 2011 tax return If it is more, only the difference is treated as a payment. How to amend my 2011 tax return 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. How to amend my 2011 tax return These rules are the same as the rules discussed earlier under Buyer Assumes Mortgage . How to amend my 2011 tax return However, they apply only to the following types of debt the buyer assumes. How to amend my 2011 tax return Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. How to amend my 2011 tax return Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. How to amend my 2011 tax return 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. How to amend my 2011 tax return The value of the assumed debt is then considered a payment to you in the year of sale. How to amend my 2011 tax return Property Used As a Payment If you receive property other than money from the buyer, it is still considered a payment in the year received. How to amend my 2011 tax return However, see Like-Kind Exchange , later. How to amend my 2011 tax return Generally, the amount of the payment is the property's FMV on the date you receive it. How to amend my 2011 tax return Exception. How to amend my 2011 tax return   If the property the buyer gives you is payable on demand or readily tradable, 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 the 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. How to amend my 2011 tax return See Unstated Interest and Original Issue Discount (OID) , later. How to amend my 2011 tax return Debt not payable on demand. How to amend my 2011 tax return   Any evidence of debt you receive from the buyer not payable on demand is not considered a payment. How to amend my 2011 tax return This is true even if the debt is guaranteed by a third party, including a government agency. How to amend my 2011 tax return Fair market value (FMV). How to amend my 2011 tax return   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. How to amend my 2011 tax return Third-party note. How to amend my 2011 tax return   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. How to amend my 2011 tax return 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. How to amend my 2011 tax return The excess of the note's face value over its FMV is interest. How to amend my 2011 tax return Exclude this interest in determining the selling price of the property. How to amend my 2011 tax return However, see Exception under Property Used As a Payment, earlier. How to amend my 2011 tax return Example. How to amend my 2011 tax return You sold real estate in an installment sale. How to amend my 2011 tax return As part of the down payment, the buyer assigned to you a $50,000, 8% interest third-party note. How to amend my 2011 tax return The FMV of the third-party note at the time of the sale was $30,000. How to amend my 2011 tax return This amount, not $50,000, is a payment to you in the year of sale. How to amend my 2011 tax return 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. How to amend my 2011 tax return The remaining 40% is interest taxed as ordinary income. How to amend my 2011 tax return Bond. How to amend my 2011 tax return   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. How to amend my 2011 tax return For more information on the amount you should treat as a payment, see Exception under Property Used As a Payment, earlier. How to amend my 2011 tax return    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. How to amend my 2011 tax return However, see Exception under Property Used As a Payment, earlier. How to amend my 2011 tax return Buyer's note. How to amend my 2011 tax return   The buyer's note (unless payable on demand) is not considered payment on the sale. How to amend my 2011 tax return However, its full face value is included when figuring the selling price and the contract price. How to amend my 2011 tax return Payments you receive on the note are used to figure your gain in the year received. How to amend my 2011 tax return Installment Obligation Used as Security (Pledge Rule) If you use an installment obligation to secure any debt, the net proceeds from the debt may be treated as a payment on the installment obligation. How to amend my 2011 tax return This is known as the pledge rule, and it applies if the selling price of the property is over $150,000. How to amend my 2011 tax return It does not apply to the following dispositions. How to amend my 2011 tax return Sales of property used or produced in farming. How to amend my 2011 tax return Sales of personal-use property. How to amend my 2011 tax return Qualifying sales of time-shares and residential lots. How to amend my 2011 tax return The net debt proceeds are the gross debt minus the direct expenses of getting the debt. How to amend my 2011 tax return The amount treated as a payment is considered received on the later of the following dates. How to amend my 2011 tax return The date the debt becomes secured. How to amend my 2011 tax return The date you receive the debt proceeds. How to amend my 2011 tax return A debt is secured by an installment obligation to the extent that payment of principal or interest on the debt is directly secured (under the terms of the loan or any underlying arrangement) by any interest in the installment obligation. How to amend my 2011 tax return For sales after December 16, 1999, payment on a debt is treated as directly secured by an interest in an installment obligation to the extent an arrangement allows you to satisfy all or part of the debt with the installment obligation. How to amend my 2011 tax return Limit. How to amend my 2011 tax return   The net debt proceeds treated as a payment on the pledged installment obligation cannot be more than the excess of item (1) over item (2), below. How to amend my 2011 tax return The total contract price on the installment sale. How to amend my 2011 tax return Any payments received on the installment obligation before the date the net debt proceeds are treated as a payment. How to amend my 2011 tax return Installment payments. How to amend my 2011 tax return   The pledge rule accelerates the reporting of the installment obligation payments. How to amend my 2011 tax return Do not report payments received on the obligation after it has been pledged until the payments received exceed the amount reported under the pledge rule. How to amend my 2011 tax return Exception. How to amend my 2011 tax return   The pledge rule does not apply to pledges made after December 17, 1987, to refinance a debt under the following circumstances. How to amend my 2011 tax return The debt was outstanding on December 17, 1987. How to amend my 2011 tax return The debt was secured by that installment sale obligation on that date and at all times thereafter until the refinancing occurred. How to amend my 2011 tax return   A refinancing as a result of the creditor's calling of the debt is treated as a continuation of the original debt so long as a person other than the creditor or a person related to the creditor provides the refinancing. How to amend my 2011 tax return   This exception applies only to refinancing that does not exceed the principal of the original debt immediately before the refinancing. How to amend my 2011 tax return Any excess is treated as a payment on the installment obligation. How to amend my 2011 tax return Escrow Account In some cases, the sales agreement or a later agreement may call for the buyer to establish an irrevocable escrow account from which the remaining installment payments (including interest) are to be made. How to amend my 2011 tax return These sales cannot be reported on the installment method. How to amend my 2011 tax return The buyer's obligation is paid in full when the balance of the purchase price is deposited into the escrow account. How to amend my 2011 tax return When an escrow account is established, you no longer rely on the buyer for the rest of the payments, but on the escrow arrangement. How to amend my 2011 tax return Example. How to amend my 2011 tax return You sell property for $100,000. How to amend my 2011 tax return The sales agreement calls for a down payment of $10,000 and payment of $15,000 in each of the next 6 years to be made from an irrevocable escrow account containing the balance of the purchase price plus interest. How to amend my 2011 tax return You cannot report the sale on the installment method because the full purchase price is considered received in the year of sale. How to amend my 2011 tax return You report the entire gain in the year of sale. How to amend my 2011 tax return Escrow established in a later year. How to amend my 2011 tax return   If you make an installment sale and in a later year an irrevocable escrow account is established to pay the remaining installments plus interest, the amount placed in the escrow account represents payment of the balance of the installment obligation. How to amend my 2011 tax return Substantial restriction. How to amend my 2011 tax return   If an escrow arrangement imposes a substantial restriction on your right to receive the sale proceeds, the sale can be reported on the installment method, provided it otherwise qualifies. How to amend my 2011 tax return For an escrow arrangement to impose a substantial restriction, it must serve a bona fide purpose of the buyer, that is, a real and definite restriction placed on the seller or a specific economic benefit conferred on the buyer. How to amend my 2011 tax return Depreciation Recapture Income If you sell property for which you claimed or could have claimed a depreciation deduction, you must report any depreciation recapture income in the year of sale, whether or not an installment payment was received that year. How to amend my 2011 tax return Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. How to amend my 2011 tax return Report the recapture income in Part II of Form 4797 as ordinary income in the year of sale. How to amend my 2011 tax return The recapture income is also included in Part I of Form 6252. How to amend my 2011 tax return However, the gain equal to the recapture income is reported in full in the year of the sale. How to amend my 2011 tax return Only the gain greater than the recapture income is reported on the installment method. How to amend my 2011 tax return For more information on depreciation recapture, see chapter 3 in Publication 544. How to amend my 2011 tax return The recapture income reported in the year of sale is included in your installment sale basis in determining your gross profit on the installment sale. How to amend my 2011 tax return Determining gross profit is discussed under General Rules , earlier. How to amend my 2011 tax return Sale to a Related Person 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. How to amend my 2011 tax return If you sell property to a related person and the related person disposes of the property before you receive all payments with respect to the sale, you may have to treat the amount realized by the related person as received by you when the related person disposes of the property. How to amend my 2011 tax return These rules are explained under Sale of Depreciable Property and under Sale and Later Disposition , later. How to amend my 2011 tax return Sale of Depreciable Property If you sell depreciable property to certain related persons, you generally cannot report the sale using the installment method. How to amend my 2011 tax return Instead, all payments to be received are considered received in the year of sale. How to amend my 2011 tax return However, see Exception , below. How to amend my 2011 tax return Depreciable property for this rule is any property the purchaser can depreciate. How to amend my 2011 tax return Payments to be received include the total of all noncontingent payments and the FMV of any payments contingent as to amount. How to amend my 2011 tax return In the case of contingent payments for which the FMV cannot be reasonably determined, your basis in the property is recovered proportionately. How to amend my 2011 tax return The purchaser cannot increase the basis of the property acquired in the sale before the seller includes a like amount in income. How to amend my 2011 tax return Exception. How to amend my 2011 tax return   You can use the installment method to report a sale of depreciable property to a related person if no significant tax deferral benefit will be derived from the sale. How to amend my 2011 tax return You must show to the satisfaction of the IRS that avoidance of federal income tax was not one of the principal purposes of the sale. How to amend my 2011 tax return Related person. How to amend my 2011 tax return   Related persons include the following. How to amend my 2011 tax return A person and all controlled entities with respect to that person. How to amend my 2011 tax return A taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless that beneficiary's interest in the trust is a remote contingent interest. How to amend my 2011 tax return Except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of that estate. How to amend my 2011 tax return Two or more partnerships in which the same person owns, directly or indirectly, more than 50% of the capital interests or the profits interests. How to amend my 2011 tax return   For information about which entities are controlled entities, see section 1239(c). How to amend my 2011 tax return Sale and Later Disposition Generally, a special rule applies if you sell or exchange property to a related person on the installment method (first disposition) who then sells, exchanges, or gives away the property (second disposition) under the following circumstances. How to amend my 2011 tax return The related person makes the second disposition before making all payments on the first disposition. How to amend my 2011 tax return The related person disposes of the property within 2 years of the first disposition. How to amend my 2011 tax return This rule does not apply if the property involved is marketable securities. How to amend my 2011 tax return Under this rule, you treat part or all of the amount the related person realizes (or the FMV if the disposed property is not sold or exchanged) from the second disposition as if you received it at the time of the second disposition. How to amend my 2011 tax return See Exception , later. How to amend my 2011 tax return Related person. How to amend my 2011 tax return   Related persons include the following. How to amend my 2011 tax return Members of a family, including only brothers and sisters (either whole or half), husband and wife, ancestors, and lineal descendants. How to amend my 2011 tax return A partnership or estate and a partner or beneficiary. How to amend my 2011 tax return A trust (other than a section 401(a) employees trust) and a beneficiary. How to amend my 2011 tax return A trust and an owner of the trust. How to amend my 2011 tax return Two corporations that are members of the same controlled group as defined in section 267(f). How to amend my 2011 tax return The fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. How to amend my 2011 tax return A tax-exempt educational or charitable organization and a person (if an individual, including members of the individual's family) who directly or indirectly controls such an organization. How to amend my 2011 tax return An individual and a corporation when the individual owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. How to amend my 2011 tax return A fiduciary of a trust and a corporation when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. How to amend my 2011 tax return The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. How to amend my 2011 tax return Any two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. How to amend my 2011 tax return An S corporation and a corporation that is not an S corporation if the same persons own more than 50% in value of the outstanding stock of each corporation. How to amend my 2011 tax return A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. How to amend my 2011 tax return An executor and a beneficiary of an estate unless the sale is in satisfaction of a pecuniary bequest. How to amend my 2011 tax return Example 1. How to amend my 2011 tax return In 2012, Harvey Green sold farm land to his son Bob for $500,000, which was to be paid in five equal payments over 5 years, plus adequate stated interest on the balance due. How to amend my 2011 tax return His installment sale basis for the farm land was $250,000 and the property was not subject to any outstanding liens or mortgages. How to amend my 2011 tax return His gross profit percentage is 50% (gross profit of $250,000 ÷ contract price of $500,000). How to amend my 2011 tax return He received $100,000 in 2012 and included $50,000 in income for that year ($100,000 × 0. How to amend my 2011 tax return 50). How to amend my 2011 tax return Bob made no improvements to the property and sold it to Alfalfa Inc. How to amend my 2011 tax return , in 2013 for $600,000 after making the payment for that year. How to amend my 2011 tax return The amount realized from the second disposition is $600,000. How to amend my 2011 tax return Harvey figures his installment sale income for 2013 as follows: Lesser of: 1) Amount realized on second disposition, or 2) Contract price on first disposition $500,000 Subtract: Sum of payments from Bob in 2012 and 2013 - 200,000 Amount treated as received because of second disposition $300,000 Add: Payment from Bob in 2013 + 100,000 Total payments received and treated as received for 2013 $400,000 Multiply by gross profit % × . How to amend my 2011 tax return 50 Installment sale income for 2013 $200,000 Harvey will not include in his installment sale income any principal payments he receives on the installment obligation for 2014, 2015, and 2016 because he has already reported the total payments of $500,000 from the first disposition ($100,000 in 2012 and $400,000 in 2013). How to amend my 2011 tax return Example 2. How to amend my 2011 tax return Assume the facts are the same as Example 1 except that Bob sells the property for only $400,000. How to amend my 2011 tax return The gain for 2013 is figured as follows: Lesser of: 1) Amount realized on second disposition, or 2) Contract price on first disposition $400,000 Subtract: Sum of payments from Bob in 2012 and 2013 − 200,000 Amount treated as received because of second disposition $200,000 Add: Payment from Bob in 2013 + 100,000 Total payments received and treated as received for 2013 $300,000 Multiply by gross profit % × . How to amend my 2011 tax return 50 Installment sale income for 2013 $150,000     Harvey receives a $100,000 payment in 2014 and another in 2015. How to amend my 2011 tax return They are not taxed because he treated the $200,000 from the disposition in 2013 as a payment received and paid tax on the installment sale income. How to amend my 2011 tax return In 2016, he receives the final $100,000 payment. How to amend my 2011 tax return He figures the installment sale income he must recognize in 2016 as follows: Total payments from the first disposition received by the end of 2016 $500,000 Minus the sum of:     Payment from 2012 $100,000   Payment from 2013 100,000   Amount treated as received in 2013 200,000   Total on which gain was previously recognized  − 400,000 Payment on which gain is recognized for 2016  $100,000 Multiply by gross profit % × . How to amend my 2011 tax return 50 Installment sale income for 2016 $ 50,000 Exception. How to amend my 2011 tax return   This rule does not apply to a second disposition, and any later transfer, if you can show to the satisfaction of the IRS that neither the first disposition (to the related person) nor the second disposition had as one of its principal purposes the avoidance of federal income tax. How to amend my 2011 tax return Generally, an involuntary second disposition will qualify under the nontax avoidance exception, such as when a creditor of the related person forecloses on the property or the related person declares bankruptcy. How to amend my 2011 tax return   The nontax avoidance exception also applies to a second disposition that is also an installment sale if the terms of payment under the installment resale are substantially equal to or longer than those for the first installment sale. How to amend my 2011 tax return However, the exception does not apply if the resale terms permit significant deferral of recognition of gain from the first sale. How to amend my 2011 tax return   In addition, any sale or exchange of stock to the issuing corporation is not treated as a first disposition. How to amend my 2011 tax return An involuntary conversion is not treated as a second disposition if the first disposition occurred before the threat of conversion. How to amend my 2011 tax return A transfer after the death of the person making the first disposition or the related person's death, whichever is earlier, is not treated as a second disposition. How to amend my 2011 tax return Like-Kind Exchange 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. How to amend my 2011 tax return These trades are known as like-kind exchanges. How to amend my 2011 tax return The property you receive in a like-kind exchange is treated as if it were a continuation of the property you gave up. How to amend my 2011 tax return You do not have to report any part of your gain if you receive only like-kind property. How to amend my 2011 tax return However, if you also receive money or other property (boot) in the exchange, you must report your gain to the extent of the money and the FMV of the other property received. How to amend my 2011 tax return For more information on like-kind exchanges, see Like-Kind Exchanges in chapter 1 of Publication 544. How to amend my 2011 tax return Installment payments. How to amend my 2011 tax return   If, in addition to like-kind property, you receive an installment obligation in the exchange, the following rules apply to determine the installment sale income each year. How to amend my 2011 tax return The contract price is reduced by the FMV of the like-kind property received in the trade. How to amend my 2011 tax return The gross profit is reduced by any gain on the trade that can be postponed. How to amend my 2011 tax return Like-kind property received in the trade is not considered payment on the installment obligation. How to amend my 2011 tax return Example. How to amend my 2011 tax return In 2013, George Brown trades personal property with an installment sale basis of $400,000 for like-kind property having an FMV of $200,000. How to amend my 2011 tax return He also receives an installment note for $800,000 in the trade. How to amend my 2011 tax return Under the terms of the note, he is to receive $100,000 (plus interest) in 2014 and the balance of $700,000 (plus interest) in 2015. How to amend my 2011 tax return George's selling price is $1,000,000 ($800,000 installment note + $200,000 FMV of like-kind property received). How to amend my 2011 tax return His gross profit is $600,000 ($1,000,000 − $400,000 installment sale basis). How to amend my 2011 tax return The contract price is $800,000 ($1,000,000 − $200,000). How to amend my 2011 tax return The gross profit percentage is 75% ($600,000 ÷ $800,000). How to amend my 2011 tax return He reports no gain in 2013 because the like-kind property he receives is not treated as a payment for figuring gain. How to amend my 2011 tax return He reports $75,000 gain for 2014 (75% of $100,000 payment received) and $525,000 gain for 2015 (75% of $700,000 payment received). How to amend my 2011 tax return Deferred exchanges. How to amend my 2011 tax return   A deferred exchange is one in which you transfer property you use in business or hold for investment and receive like-kind property later that you will use in business or hold for investment. How to amend my 2011 tax return Under this type of exchange, the person receiving your property may be required to place funds in an escrow account or trust. How to amend my 2011 tax return If certain rules are met, these funds will not be considered a payment until you have the right to receive the funds or, if earlier, the end of the exchange period. How to amend my 2011 tax return See Regulations section 1. How to amend my 2011 tax return 1031(k)-1(j)(2) for these rules. How to amend my 2011 tax return Contingent Payment Sale A contingent payment sale is one in which the total selling price cannot be determined by the end of the tax year of sale. How to amend my 2011 tax return This happens, for example, if you sell your business and the selling price includes a percentage of its profits in future years. How to amend my 2011 tax return If the selling price cannot be determined by the end of the tax year, you must use different rules to figure the contract price and the gross profit percentage than those you use for an installment sale with a fixed selling price. How to amend my 2011 tax return For rules on using the installment method for a contingent payment sale, see Regulations section 15a. How to amend my 2011 tax return 453-1(c). How to amend my 2011 tax return Single Sale of Several Assets If you sell different types of assets in a single sale, you must identify each asset to determine whether you can use the installment method to report the sale of that asset. How to amend my 2011 tax return You also have to allocate part of the selling price to each asset. How to amend my 2011 tax return If you sell assets that constitute a trade or business, see Sale of a Business , later. How to amend my 2011 tax return Unless an allocation of the selling price has been agreed to by both parties in an arm's-length transaction, you must allocate the selling price to an asset based on its FMV. How to amend my 2011 tax return If the buyer assumes a debt, or takes the property subject to a debt, you must reduce the FMV of the property by the debt. How to amend my 2011 tax return This becomes the net FMV. How to amend my 2011 tax return A sale of separate and unrelated assets of the same type under a single contract is reported as one transaction for the installment method. How to amend my 2011 tax return However, if an asset is sold at a loss, its disposition cannot be reported on the installment method. How to amend my 2011 tax return It must be reported separately. How to amend my 2011 tax return The remaining assets sold at a gain are reported together. How to amend my 2011 tax return Example. How to amend my 2011 tax return You sold three separate and unrelated parcels of real property (A, B, and C) under a single contract calling for a total selling price of $130,000. How to amend my 2011 tax return The total selling price consisted of a cash payment of $20,000, the buyer's assumption of a $30,000 mortgage on parcel B, and an installment obligation of $80,000 payable in eight annual installments, plus interest at 8% a year. How to amend my 2011 tax return Your installment sale basis for each parcel was $15,000. How to amend my 2011 tax return Your net gain was $85,000 ($130,000 − $45,000). How to amend my 2011 tax return You report the gain on the installment method. How to amend my 2011 tax return The sales contract did not allocate the selling price or the cash payment received in the year of sale among the individual parcels. How to amend my 2011 tax return The FMV of parcels A, B, and C were $60,000, $60,000, and $10,000, respectively. How to amend my 2011 tax return The installment sale basis for parcel C was more than its FMV, so it was sold at a loss and must be treated separately. How to amend my 2011 tax return You must allocate the total selling price and the amounts received in the year of sale between parcel C and the remaining parcels. How to amend my 2011 tax return Of the total $130,000 selling price, you must allocate $120,000 to parcels A and B together and $10,000 to parcel C. How to amend my 2011 tax return You should allocate the cash payment of $20,000 received in the year of sale and the note receivable on the basis of their proportionate net FMV. How to amend my 2011 tax return The allocation is figured as follows:   Parcels   A and B Parcel C FMV $120,000 $10,000 Minus: Mortgage assumed 30,000 -0- Net FMV $ 90,000 $10,000 Proportionate net FMV:     Percentage of total 90% 10% Payments in year of sale:     $20,000 × 90% $18,000   $20,000 × 10%   $2,000 Excess of parcel B mortgage over installment sale basis 15,000 -0- Allocation of payments  received (or considered  received) in year of sale $ 33,000 $ 2,000 You cannot report the sale of parcel C on the installment method because the sale results in a loss. How to amend my 2011 tax return You report this loss of $5,000 ($10,000 selling price − $15,000 installment sale basis) in the year of sale. How to amend my 2011 tax return However, if parcel C was held for personal use, the loss is not deductible. How to amend my 2011 tax return You allocate the installment obligation of $80,000 to the properties sold based on their proportionate net FMVs (90% to parcels A and B, 10% to parcel C). How to amend my 2011 tax return Sale of a Business The installment sale of an entire business for one overall price under a single contract is not the sale of a single asset. How to amend my 2011 tax return Allocation of Selling Price To determine whether any of the gain on the sale of the business can be reported on the installment method, you must allocate the total selling price and the payments received in the year of sale between each of the following classes of assets. How to amend my 2011 tax return Assets sold at a loss. How to amend my 2011 tax return Real and personal property eligible for the installment method. How to amend my 2011 tax return Real and personal property ineligible for the installment method, including: Inventory, Dealer property, and Stocks and securities. How to amend my 2011 tax return Inventory. How to amend my 2011 tax return   The sale of inventories of personal property cannot be reported on the installment method. How to amend my 2011 tax return All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. How to amend my 2011 tax return   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. How to amend my 2011 tax return If you do not, each payment must be allocated between the inventory and the other assets sold. How to amend my 2011 tax return   Report the amount you receive (or will receive) on the sale of inventory items as ordinary business income. How to amend my 2011 tax return Use your basis in the inventory to figure the cost of goods sold. How to amend my 2011 tax return Deduct the part of the selling expenses allocated to inventory as an ordinary business expense. How to amend my 2011 tax return Residual method. How to amend my 2011 tax return   Except for assets exchanged under the like-kind exchange rules, both the buyer and seller of a business must use the residual method to allocate the sale price to each business asset sold. How to amend my 2011 tax return This method determines gain or loss from the transfer of each asset and the buyer's basis in the assets. How to amend my 2011 tax return   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. How to amend my 2011 tax return This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b). How to amend my 2011 tax return   A group of assets constitutes a trade or business if goodwill or going concern value could, under any circumstances, attach to the assets or if the use of the assets would constitute an active trade or business under section 355. How to amend my 2011 tax return   The residual method provides for the consideration to be reduced first by cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). How to amend my 2011 tax return The consideration remaining after this reduction must be allocated among the various business assets in a certain order. How to amend my 2011 tax return   For asset acquisitions occurring after March 15, 2001, make the allocation among the following assets in proportion to (but not more than) their fair market value on the purchase date in the following order. How to amend my 2011 tax return Certificates of deposit, U. How to amend my 2011 tax return S. How to amend my 2011 tax return Government securities, foreign currency, and actively traded personal property, including stock and securities. How to amend my 2011 tax return Accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. How to amend my 2011 tax return However, see Regulations section 1. How to amend my 2011 tax return 338-6(b)(2)(iii) for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. How to amend my 2011 tax return Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. How to amend my 2011 tax return All other assets except section 197 intangibles. How to amend my 2011 tax return Section 197 intangibles except goodwill and going concern value. How to amend my 2011 tax return Goodwill and going concern value (whether or not they qualify as section 197 intangibles). How to amend my 2011 tax return   If an asset described in (1) through (6) is includible in more than one category, include it in the lower number category. How to amend my 2011 tax return For example, if an asset is described in both (4) and (6), include it in (4). How to amend my 2011 tax return Agreement. How to amend my 2011 tax return   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. How to amend my 2011 tax return This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. How to amend my 2011 tax return Reporting requirement. How to amend my 2011 tax return   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. How to amend my 2011 tax return Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. How to amend my 2011 tax return The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. How to amend my 2011 tax return Sale of Partnership Interest A partner who sells a partnership interest at a gain may be able to report the sale on the installment method. How to amend my 2011 tax return The sale of a partnership interest is treated as the sale of a single capital asset. How to amend my 2011 tax return The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary income. How to amend my 2011 tax return (The term “unrealized receivables” includes depreciation recapture income, discussed earlier. How to amend my 2011 tax return ) The gain allocated to the unrealized receivables and the inventory cannot be reported under the installment method. How to amend my 2011 tax return The gain allocated to the other assets can be reported under the installment method. How to amend my 2011 tax return For more information on the treatment of unrealized receivables and inventory, see Publication 541. How to amend my 2011 tax return Example — Sale of a Business On June 4, 2013, you sold the machine shop you had operated since 2005. How to amend my 2011 tax return You received a $100,000 down payment and the buyer's note for $120,000. How to amend my 2011 tax return The note payments are $15,000 each, plus 10% interest, due every July 1 and January 1, beginning in 2014. How to amend my 2011 tax return The total selling price is $220,000. How to amend my 2011 tax return Your selling expenses are $11,000. How to amend my 2011 tax return The selling expenses are divided among all the assets sold, including inventory. How to amend my 2011 tax return Your selling expense for each asset is 5% of the asset's selling price ($11,000 selling expense ÷ $220,000 total selling price). How to amend my 2011 tax return The FMV, adjusted basis, and depreciation claimed on each asset sold are as follows:     Depre- ciation Adj. How to amend my 2011 tax return Asset FMV Claimed Basis Inventory $ 10,000 -0- $ 8,000 Land 42,000 -0- 15,000 Building 48,000 $9,000 36,000 Machine A 71,000 27,200 63,800 Machine B 24,000 12,960 22,040 Truck 6,500 18,624 5,376   $201,500 $67,784 $150,216         Under the residual method, you allocate the selling price to each of the assets based on their FMV ($201,500). How to amend my 2011 tax return The remaining $18,500 ($220,000 - $201,500) is allocated to your section 197 intangible, goodwill. How to amend my 2011 tax return The assets included in the sale, their selling prices based on their FMVs, the selling expense allocated to each asset, the adjusted basis, and the gain for each asset are shown in the following chart. How to amend my 2011 tax return   Sale  Price Sale   Exp. How to amend my 2011 tax return Adj. How to amend my 2011 tax return   Basis Gain Inventory $ 10,000 $ 500 $ 8,000 $ 1,500 Land 42,000 2,100 15,000 24,900 Building 48,000 2,400 36,000 9,600 Mch. How to amend my 2011 tax return A 71,000 3,550 63,800 3,650 Mch. How to amend my 2011 tax return B 24,000 1,200 22,040 760 Truck 6,500 325 5,376 799 Goodwill 18,500 925 -0- 17,575   $220,000 $11,000 $150,216 $58,784 The building was acquired in 2005, the year the business began, and it is section 1250 property. How to amend my 2011 tax return There is no depreciation recapture income because the building was depreciated using the straight line method. How to amend my 2011 tax return All gain on the truck, machine A, and machine B is depreciation recapture income since it is the lesser of the depreciation claimed or the gain on the sale. How to amend my 2011 tax return Figure depreciation recapture in Part III of Form 4797. How to amend my 2011 tax return The total depreciation recapture income reported in Part II of Form 4797 is $5,209. How to amend my 2011 tax return This consists of $3,650 on machine A, $799 on the truck, and $760 on machine B (the gain on each item because it was less than the depreciation claimed). How to amend my 2011 tax return These gains are reported in full in the year of sale and are not included in the installment sale computation. How to amend my 2011 tax return Of the $220,000 total selling price, the $10,000 for inventory assets cannot be reported using the installment method. How to amend my 2011 tax return The selling prices of the truck and machines are also removed from the total selling price because gain on these items is reported in full in the year of sale. How to amend my 2011 tax return The selling price equals the contract price for the installment sale ($108,500). How to amend my 2011 tax return The assets included in the installment sale, their selling price, and their installment sale bases are shown in the following chart. How to amend my 2011 tax return   Selling  Price Install- ment  Sale  Basis Gross  Profit Land $ 42,000 $17,100 $24,900 Building 48,000 38,400 9,600 Goodwill 18,500 925 17,575 Total $108,500 $56,425 $52,075         The gross profit percentage (gross profit ÷ contract price) for the installment sale is 48% ($52,075 ÷ $108,500). How to amend my 2011 tax return The gross profit percentage for each asset is figured as follows: Percentage Land— $24,900 ÷ $108,500 22. How to amend my 2011 tax return 95 Building— $9,600 ÷ $108,500 8. How to amend my 2011 tax return 85 Goodwill— $17,575 ÷ $108,500 16. How to amend my 2011 tax return 20 Total 48. How to amend my 2011 tax return 00 The sale includes assets sold on the installment method and assets for which the gain is reported in full in the year of sale, so payments must be allocated between the installment part of the sale and the part reported in the year of sale. How to amend my 2011 tax return The selling price for the installment sale is $108,500. How to amend my 2011 tax return This is 49. How to amend my 2011 tax return 3% of the total selling price of $220,000 ($108,500 ÷ $220,000). How to amend my 2011 tax return The selling price of assets not reported on the installment method is $111,500. How to amend my 2011 tax return This is 50. How to amend my 2011 tax return 7% ($111,500 ÷ $220,000) of the total selling price. How to amend my 2011 tax return Multiply principal payments by 49. How to amend my 2011 tax return 3% to determine the part of the payment for the installment sale. How to amend my 2011 tax return The balance, 50. How to amend my 2011 tax return 7%, is for the part reported in the year of the sale. How to amend my 2011 tax return The gain on the sale of the inventory, machines, and truck is reported in full in the year of sale. How to amend my 2011 tax return When you receive principal payments in later years, no part of the payment for the sale of these assets is included in gross income. How to amend my 2011 tax return Only the part for the installment sale (49. How to amend my 2011 tax return 3%) is used in the installment sale computation. How to amend my 2011 tax return The only payment received in 2013 is the down payment of $100,000. How to amend my 2011 tax return The part of the payment for the installment sale is $49,300 ($100,000 × 49. How to amend my 2011 tax return 3%). How to amend my 2011 tax return This amount is used in the installment sale computation. How to amend my 2011 tax return Installment income for 2013. How to amend my 2011 tax return   Your installment income for each asset is the gross profit percentage for that asset times $49,300, the installment income received in 2013. How to amend my 2011 tax return Income Land—22. How to amend my 2011 tax return 95% of $49,300 $11,314 Building—8. How to amend my 2011 tax return 85% of $49,300 4,363 Goodwill—16. How to amend my 2011 tax return 2% of $49,300 7,987 Total installment income for 2013 $23,664 Installment income after 2013. How to amend my 2011 tax return   You figure installment income for years after 2013 by applying the same gross profit percentages to 49. How to amend my 2011 tax return 3% of the total payments you receive on the buyer's note during the year. How to amend my 2011 tax return Unstated Interest and Original Issue Discount (OID) 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. How to amend my 2011 tax return Interest provided in the contract is called stated interest. How to amend my 2011 tax return 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. How to amend my 2011 tax return If section 483 applies to the contract, this interest is called unstated interest. How to amend my 2011 tax return If section 1274 applies to the contract, this interest is called original issue discount (OID). How to amend my 2011 tax return An installment sale contract does not provide for adequate stated interest if the stated interest rate is lower than the test rate (defined later). How to amend my 2011 tax return Treatment of unstated interest and OID. How to amend my 2011 tax return   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. How to amend my 2011 tax return As a result, the buyer cannot deduct the unstated interest. How to amend my 2011 tax return The seller must report the unstated interest as income. How to amend my 2011 tax return   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. How to amend my 2011 tax return   If the debt is subject to the 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. How to amend my 2011 tax return Rules for the seller. How to amend my 2011 tax return   If either section 1274 or section 483 applies to the installment sale contract, you must treat part of the installment sale price as interest, even though interest is not called for in the sales agreement. How to amend my 2011 tax return If either section applies, you must reduce the stated selling price of the property and increase your interest income by this unstated interest. How to amend my 2011 tax return   Include the unstated interest in income based on your regular method of accounting. How to amend my 2011 tax return Include OID in income over the term of the contract. How to amend my 2011 tax return   The OID includible in income each year is based on the constant yield method described in section 1272. How to amend my 2011 tax return (In some cases, the OID on an installment sale contract also may include all or part of the stated interest, especially if the stated interest is not paid at least annually. How to amend my 2011 tax return )   If you do not use the installment method to report the sale, report the entire gain under your method of accounting in the year of sale. How to amend my 2011 tax return Reduce the selling price by any stated principal treated as interest to determine the gain. How to amend my 2011 tax return   Report unstated interest or OID on your tax return, in addition to stated interest. How to amend my 2011 tax return Rules for the buyer. How to amend my 2011 tax return   Any part of the stated selling price of an installment sale contract treated by the buyer as interest reduces the buyer's basis in the property and increases the buyer's interest expense. How to amend my 2011 tax return These rules do not apply to personal-use property (for example, property not used in a trade or business). How to amend my 2011 tax return Adequate stated interest. How to amend my 2011 tax return   An installment sale contract generally provides for adequate stated interest if the contract's stated principal amount is at least equal to the sum of the present values of all principal and interest payments called for under the contract. How to amend my 2011 tax return The present value of a payment is determined based on the test rate of interest, defined next. How to amend my 2011 tax return (If section 483 applies to the contract, payments due within six months after the sale are taken into account at face value. How to amend my 2011 tax return ) 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 test rate of interest. How to amend my 2011 tax return Test rate of interest. How to amend my 2011 tax return   The test rate of interest for a contract is the 3-month rate. How to amend my 2011 tax return The 3-month rate is the lower of the following applicable federal rates (AFRs). How to amend my 2011 tax return The lowest AFR (based on the appropriate compounding period) in effect during the 3-month period ending with the first month in which there is a binding written contract that substantially provides the terms under which the sale or exchange is ultimately completed. How to amend my 2011 tax return The lowest AFR (based on the appropriate compounding period) in effect during the 3-month period ending with the month in which the sale or exchange occurs. How to amend my 2011 tax return Applicable federal rate (AFR). How to amend my 2011 tax return   The AFR depends on the month the binding