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Order 2012 Tax Forms From Irs

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Order 2012 Tax Forms From Irs

Order 2012 tax forms from irs 9. Order 2012 tax forms from irs   Figuring Net Profit or Loss Table of Contents Introduction Net Operating Losses (NOLs) Not-for-Profit Activities Introduction After figuring your business income and expenses, you are ready to figure the net profit or net loss from your business. Order 2012 tax forms from irs You do this by subtracting business expenses from business income. Order 2012 tax forms from irs If your expenses are less than your income, the difference is net profit and becomes part of your income on page 1 of Form 1040. Order 2012 tax forms from irs If your expenses are more than your income, the difference is a net loss. Order 2012 tax forms from irs You usually can deduct it from gross income on page 1 of Form 1040. Order 2012 tax forms from irs But in some situations your loss is limited. Order 2012 tax forms from irs This chapter briefly explains two of those situations. Order 2012 tax forms from irs Other situations that may limit your loss are explained in the Instructions for Schedule C, line G and line 32. Order 2012 tax forms from irs If you have more than one business, you must figure your net profit or loss for each business on a separate Schedule C. Order 2012 tax forms from irs Net Operating Losses (NOLs) If your deductions for the year are more than your income for the year (line 41 of your Form 1040 is a negative number), you may have a net operating loss (NOL). Order 2012 tax forms from irs You can use an NOL by deducting it from your income in another year or years. Order 2012 tax forms from irs Examples of typical losses that may produce an NOL include, but are not limited to, losses incurred from the following. Order 2012 tax forms from irs Your trade or business. Order 2012 tax forms from irs Your work as an employee (unreimbursed employee business expenses). Order 2012 tax forms from irs A casualty or theft. Order 2012 tax forms from irs Moving expenses. Order 2012 tax forms from irs Rental property. Order 2012 tax forms from irs A loss from operating a business is the most common reason for an NOL. Order 2012 tax forms from irs For details about NOLs, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Order 2012 tax forms from irs It explains how to figure an NOL, when to use it, how to claim an NOL deduction, and how to figure an NOL carryover. Order 2012 tax forms from irs Not-for-Profit Activities If you do not carry on your business to make a profit, there is a limit on the deductions you can take. Order 2012 tax forms from irs You cannot use a loss from the activity to offset other income. Order 2012 tax forms from irs Activities you do as a hobby, or mainly for sport or recreation, come under this limit. Order 2012 tax forms from irs For details about not-for-profit activities, see chapter 1 in Publication 535, Business Expenses. Order 2012 tax forms from irs That chapter explains how to determine whether your activity is carried on to make a profit and how to figure the amount of loss you can deduct. Order 2012 tax forms from irs Prev  Up  Next   Home   More Online Publications
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The Order 2012 Tax Forms From Irs

Order 2012 tax forms from irs 10. Order 2012 tax forms from irs   Installment Sales Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Installment Sale of a Farm Installment MethodWhen to elect out. Order 2012 tax forms from irs Revoking the election. Order 2012 tax forms from irs More information. Order 2012 tax forms from irs Figuring Installment Sale Income Payments Received or Considered Received ExampleSection 1231 gains. Order 2012 tax forms from irs Summary. Order 2012 tax forms from irs Introduction An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Order 2012 tax forms from irs If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. Order 2012 tax forms from irs This method of reporting gain is called the installment method. Order 2012 tax forms from irs You cannot use the installment method to report a loss. Order 2012 tax forms from irs You can choose to report all of your gain in the year of sale. Order 2012 tax forms from irs Installment obligation. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs Topics - This chapter discusses: The general rules that apply to using the installment method Installment sale of a farm Useful Items - You may want to see: Publication 523 Selling Your Home 535 Business Expenses 537 Installment Sales 538 Accounting Periods and Methods 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property 6252 Installment Sale Income See chapter 16 for information about getting publications and forms. Order 2012 tax forms from irs Installment Sale of a Farm The installment sale of a farm for one overall price under a single contract is not the sale of a single asset. Order 2012 tax forms from irs It generally includes the sale of real property and personal property reportable on the installment method. Order 2012 tax forms from irs It may also include the sale of property for which you must maintain an inventory, which cannot be reported on the installment method. Order 2012 tax forms from irs See Inventory , later. Order 2012 tax forms from irs The selling price must be allocated to determine the amount received for each class of asset. Order 2012 tax forms from irs The tax treatment of the gain or loss on the sale of each class of assets is determined by its classification as a capital asset, as property used in the business, or as property held for sale and by the length of time the asset was held. Order 2012 tax forms from irs (See chapter 8 for a discussion of capital assets and chapter 9 for a discussion of property used in the business. Order 2012 tax forms from irs ) Separate computations must be made to figure the gain or loss for each class of asset sold. Order 2012 tax forms from irs See Sale of a Farm in chapter 8. Order 2012 tax forms from irs If you report the sale of property on the installment method, any depreciation recapture under section 1245 or 1250 of the Internal Revenue Code is generally taxable as ordinary income in the year of sale. Order 2012 tax forms from irs See Depreciation recapture , later. Order 2012 tax forms from irs This applies even if no payments are received in that year. Order 2012 tax forms from irs Installment Method An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Order 2012 tax forms from irs A farmer who is not required to maintain an inventory can use the installment method to report gain from the sale of property used or produced in farming. Order 2012 tax forms from irs See Inventory , later, for information on the sale of farm property where inventory items are included in the assets sold. Order 2012 tax forms from irs 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. Order 2012 tax forms from irs Electing out of the installment method. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs   To make this election, do not report your sale on Form 6252. Order 2012 tax forms from irs Instead, report it on Schedule D (Form 1040), Form 4797, or both. Order 2012 tax forms from irs When to elect out. Order 2012 tax forms from irs   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. Order 2012 tax forms from irs   However, if you timely file your tax return for the year the sale takes place without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Order 2012 tax forms from irs Write “Filed pursuant to section 301. Order 2012 tax forms from irs 9100-2” at the top of the amended return and file it where the original return was filed. Order 2012 tax forms from irs Revoking the election. Order 2012 tax forms from irs   Once made, the election can be revoked only with IRS approval. Order 2012 tax forms from irs A revocation is retroactive. Order 2012 tax forms from irs More information. Order 2012 tax forms from irs   See Electing Out of the Installment Method in Publication 537 for more information. Order 2012 tax forms from irs Inventory. Order 2012 tax forms from irs   The sale of farm inventory items cannot be reported on the installment method. Order 2012 tax forms from irs All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs If you do not, each payment must be allocated between the inventory and the other assets sold. Order 2012 tax forms from irs Sale at a loss. Order 2012 tax forms from irs   If your sale results in a loss, you cannot use the installment method. Order 2012 tax forms from irs If the loss is on an installment sale of business assets, you can deduct it only in the tax year of sale. Order 2012 tax forms from irs Figuring Installment Sale Income Each payment on an installment sale usually consists of the following three parts. Order 2012 tax forms from irs Interest income. Order 2012 tax forms from irs Return of your adjusted basis in the property. Order 2012 tax forms from irs Gain on the sale. Order 2012 tax forms from irs 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. Order 2012 tax forms from irs You do not include in income the part that is the return of your basis in the property. Order 2012 tax forms from irs Basis is the amount of your investment in the property for installment sale purposes. Order 2012 tax forms from irs Interest income. Order 2012 tax forms from irs   You must report interest as ordinary income. Order 2012 tax forms from irs Interest is generally not included in a down payment. Order 2012 tax forms from irs 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. Order 2012 tax forms from irs Interest provided in the agreement is called stated interest. Order 2012 tax forms from irs If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. Order 2012 tax forms from irs See Unstated interest , later. Order 2012 tax forms from irs    You must continue to report the interest income on payments you receive in subsequent years as interest income. Order 2012 tax forms from irs Adjusted basis and installment sale income (gain on sale). Order 2012 tax forms from irs   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. Order 2012 tax forms from irs A tax-free return of your adjusted basis in the property, and Your gain (referred to as “installment sale income” on Form 6252). Order 2012 tax forms from irs Figuring adjusted basis for installment sale purposes. Order 2012 tax forms from irs   You can use Worksheet 10-1 to figure your adjusted basis in the property for installment sale purposes. Order 2012 tax forms from irs 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. Order 2012 tax forms from irs    Worksheet 10-1. Order 2012 tax forms from irs Figuring Adjusted Basis and Gross Profit Percentage 1. Order 2012 tax forms from irs Enter the selling price for the property   2. Order 2012 tax forms from irs Enter your adjusted basis for the property     3. Order 2012 tax forms from irs Enter your selling expenses     4. Order 2012 tax forms from irs Enter any depreciation recapture     5. Order 2012 tax forms from irs Add lines 2, 3, and 4. Order 2012 tax forms from irs  This is your adjusted basis  for installment sale purposes   6. Order 2012 tax forms from irs Subtract line 5 from line 1. Order 2012 tax forms from irs If zero or less, enter -0-. Order 2012 tax forms from irs  This is your gross profit     If the amount entered on line 6 is zero, Stop here. Order 2012 tax forms from irs You cannot use the installment method. Order 2012 tax forms from irs   7. Order 2012 tax forms from irs Enter the contract price for the property   8. Order 2012 tax forms from irs Divide line 6 by line 7. Order 2012 tax forms from irs This is your gross profit percentage   Selling price. Order 2012 tax forms from irs   The selling price is the total cost of the property to the buyer and includes the following. Order 2012 tax forms from irs Any money you are to receive. Order 2012 tax forms from irs The fair market value (FMV) of any property you are to receive (FMV is discussed at Property used as a payment under Payments Received or Considered Received ). Order 2012 tax forms from irs 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). Order 2012 tax forms from irs Any of your selling expenses the buyer pays. Order 2012 tax forms from irs Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. Order 2012 tax forms from irs Adjusted basis for installment sale purposes. Order 2012 tax forms from irs   Your adjusted basis is the total of the following three items. Order 2012 tax forms from irs Adjusted basis. Order 2012 tax forms from irs Selling expenses. Order 2012 tax forms from irs Depreciation recapture. Order 2012 tax forms from irs Adjusted basis. Order 2012 tax forms from irs   Basis is your investment in the property for installment sale purposes. Order 2012 tax forms from irs The way you figure basis depends on how you acquire the property. Order 2012 tax forms from irs The basis of property you buy is generally its cost. Order 2012 tax forms from irs The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. Order 2012 tax forms from irs   While you own property, various events may change your original basis. Order 2012 tax forms from irs Some events, such as adding rooms or making permanent improvements, increase basis. Order 2012 tax forms from irs Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. Order 2012 tax forms from irs The result is adjusted basis. Order 2012 tax forms from irs See chapter 6 and Publication 551, Basis of Assets, for more information. Order 2012 tax forms from irs Selling expenses. Order 2012 tax forms from irs   Selling expenses relate to the sale of the property. Order 2012 tax forms from irs They include commissions, attorney fees, and any other expenses paid on the sale. Order 2012 tax forms from irs Selling expenses are added to the basis of the sold property. Order 2012 tax forms from irs Depreciation recapture. Order 2012 tax forms from irs   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. Order 2012 tax forms from irs See Depreciation Recapture in chapter 9 and Depreciation Recapture Income in Publication 537. Order 2012 tax forms from irs Gross profit. Order 2012 tax forms from irs   Gross profit is the total gain you report on the installment method. Order 2012 tax forms from irs   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. Order 2012 tax forms from irs If the property you sold was your home, subtract from the gross profit any gain you can exclude. Order 2012 tax forms from irs Contract price. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs Gross profit percentage. Order 2012 tax forms from irs   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. Order 2012 tax forms from irs This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. Order 2012 tax forms from irs   The gross profit percentage generally remains the same for each payment you receive. Order 2012 tax forms from irs However, see the example under Selling price reduced , later, for a situation where the gross profit percentage changes. Order 2012 tax forms from irs Amount to report as installment sale income. Order 2012 tax forms from irs   Multiply the payments you receive each year (less interest) by the gross profit percentage. Order 2012 tax forms from irs The result is your installment sales income for the tax year. Order 2012 tax forms from irs In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. Order 2012 tax forms from irs A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. Order 2012 tax forms from irs For a detailed discussion, see Payments Received or Considered Received , later. Order 2012 tax forms from irs Selling price reduced. Order 2012 tax forms from irs   If the selling price is reduced at a later date, the gross profit on the sale also will change. Order 2012 tax forms from irs You then must refigure the gross profit percentage for the remaining payments. Order 2012 tax forms from irs Refigure your gross profit using Worksheet 10-2. Order 2012 tax forms from irs New Gross Profit Percentage — Selling Price Reduced. Order 2012 tax forms from irs You will spread any remaining gain over future installments. Order 2012 tax forms from irs    Worksheet 10-2. Order 2012 tax forms from irs New Gross Profit Percentage — Selling Price Reduced 1. Order 2012 tax forms from irs Enter the reduced selling  price for the property   2. Order 2012 tax forms from irs Enter your adjusted  basis for the  property     3. Order 2012 tax forms from irs Enter your selling  expenses     4. Order 2012 tax forms from irs Enter any depreciation  recapture     5. Order 2012 tax forms from irs Add lines 2, 3, and 4. Order 2012 tax forms from irs   6. Order 2012 tax forms from irs Subtract line 5 from line 1. Order 2012 tax forms from irs  This is your adjusted  gross profit   7. Order 2012 tax forms from irs Enter any installment sale  income reported in  prior year(s)   8. Order 2012 tax forms from irs Subtract line 7 from line 6   9. Order 2012 tax forms from irs Future installments     10. Order 2012 tax forms from irs Divide line 8 by line 9. Order 2012 tax forms from irs  This is your new  gross profit percentage*. Order 2012 tax forms from irs   * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Order 2012 tax forms from irs Example. Order 2012 tax forms from irs In 2011, you sold land with a basis of $40,000 for $100,000. Order 2012 tax forms from irs Your gross profit was $60,000. Order 2012 tax forms from irs You received a $20,000 down payment and the buyer's note for $80,000. Order 2012 tax forms from irs The note provides for monthly payments of $1,953 each, figured at 8% interest, amortized over four years, beginning in January 2012. Order 2012 tax forms from irs Your gross profit percentage was 60%. Order 2012 tax forms from irs You received the down payment of $20,000 in 2011 and total payments of $23,436 in 2012, of which $17,675 was principal and $5,761 was interest according to the amortization schedule. Order 2012 tax forms from irs You reported a gain of $12,000 on the down payment received in 2011 and $10,605 ($17,675 X 60% (. Order 2012 tax forms from irs 60)) in 2012. Order 2012 tax forms from irs In January 2013, you and the buyer agreed to reduce the purchase price to $85,000 and payments during 2013, 2014, and 2015 are reduced to $1,483 a month amortized over the remaining three years. Order 2012 tax forms from irs The new gross profit percentage, 47. Order 2012 tax forms from irs 32%, is figured in Example — Worksheet 10-2. Order 2012 tax forms from irs Example — Worksheet 10-2. Order 2012 tax forms from irs New Gross Profit Percentage — Selling Price Reduced 1. Order 2012 tax forms from irs Enter the reduced selling  price for the property 85,000 2. Order 2012 tax forms from irs Enter your adjusted  basis for the  property 40,000   3. Order 2012 tax forms from irs Enter your selling  expenses -0-   4. Order 2012 tax forms from irs Enter any depreciation  recapture -0-   5. Order 2012 tax forms from irs Add lines 2, 3, and 4. Order 2012 tax forms from irs 40,000 6. Order 2012 tax forms from irs Subtract line 5 from line 1. Order 2012 tax forms from irs  This is your adjusted  gross profit 45,000 7. Order 2012 tax forms from irs Enter any installment sale  income reported in  prior year(s) 22,605 8. Order 2012 tax forms from irs Subtract line 7 from line 6 22,395 9. Order 2012 tax forms from irs Future installments   47,325 10. Order 2012 tax forms from irs Divide line 8 by line 9. Order 2012 tax forms from irs  This is your new  gross profit percentage*. Order 2012 tax forms from irs 47. Order 2012 tax forms from irs 32% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Order 2012 tax forms from irs You will report installment sale income of $6,878 (47. Order 2012 tax forms from irs 32% of $14,535) in 2013, $7,449 (47. Order 2012 tax forms from irs 32% of $15,742) in 2014, and $8,067 (47. Order 2012 tax forms from irs 32% of $17,048) in 2015. Order 2012 tax forms from irs Form 6252. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs Attach it to your tax return for each year. Order 2012 tax forms from irs Disposition of Installment Obligation If you are using the installment method and you dispose of the installment obligation, generally you will have a gain or loss to report. Order 2012 tax forms from irs It is considered gain or loss on the sale of the property for which you received the installment obligation. Order 2012 tax forms from irs Cancellation. Order 2012 tax forms from irs   If an installment obligation is canceled or otherwise becomes unenforceable, it is treated as a disposition other than a sale or exchange. Order 2012 tax forms from irs Your gain or loss is the difference between your basis in the obligation and its fair market value (FMV) at the time you cancel it. Order 2012 tax forms from irs If the parties are related, the FMV of the obligation is considered to be no less than its full face value. Order 2012 tax forms from irs Transfer due to death. Order 2012 tax forms from irs   The transfer of an installment obligation (other than to a buyer) as a result of the death of the seller is not a disposition. Order 2012 tax forms from irs Any unreported gain from the installment obligation is not treated as gross income to the decedent. Order 2012 tax forms from irs No income is reported on the decedent's return due to the transfer. Order 2012 tax forms from irs Whoever receives the installment obligation as a result of the seller's death is taxed on the installment payments the same as the seller would have been had the seller lived to receive the payments. Order 2012 tax forms from irs   However, if the installment obligation is canceled, becomes unenforceable, or is transferred to the buyer because of the death of the holder of the obligation, it is a disposition. Order 2012 tax forms from irs The estate must figure its gain or loss on the disposition. Order 2012 tax forms from irs If the holder and the buyer were related, the FMV of the installment obligation is considered to be no less than its full face value. Order 2012 tax forms from irs More information. Order 2012 tax forms from irs   For more information on the disposition of an installment obligation, see Publication 537. Order 2012 tax forms from irs Sale of depreciable property. Order 2012 tax forms from irs   You generally cannot report gain from the sale of depreciable property to a related person on the installment method. Order 2012 tax forms from irs See Sale to a Related Person in Publication 537. Order 2012 tax forms from irs   You cannot use the installment method to report any depreciation recapture income up to the gain on the sale. Order 2012 tax forms from irs However, report any gain greater than the recapture income on the installment method. Order 2012 tax forms from irs   The recapture income reported in the year of sale is included in your installment sale basis to determine your gross profit on the installment sale. Order 2012 tax forms from irs   Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. Order 2012 tax forms from irs Report the depreciation recapture income in Part II of Form 4797 as ordinary income in the year of sale. Order 2012 tax forms from irs    If you sell depreciable business property, prepare Form 4797 first in order to figure the amount to enter on line 12 of Part I, Form 6252. Order 2012 tax forms from irs See the Form 6252 instructions for details. Order 2012 tax forms from irs   For more information on the section 179 deduction, see Section 179 Expense Deduction in chapter 7. Order 2012 tax forms from irs For more information on depreciation recapture, see Depreciation Recapture in  chapter 9. Order 2012 tax forms from irs 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. Order 2012 tax forms from irs In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. Order 2012 tax forms from irs 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. Order 2012 tax forms from irs However, as discussed later, the buyer's assumption of your debt is treated as a recovery of basis, rather than as a payment, in many cases. Order 2012 tax forms from irs Buyer pays seller's expenses. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs Include these expenses in the selling and contract prices when figuring the gross profit percentage. Order 2012 tax forms from irs Buyer assumes mortgage. Order 2012 tax forms from irs   If the buyer assumes or pays off your mortgage, or otherwise takes the property subject to the mortgage, the following rules apply. Order 2012 tax forms from irs Mortgage less than basis. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs It is considered a recovery of your basis. Order 2012 tax forms from irs The contract price is the selling price minus the mortgage. Order 2012 tax forms from irs Example. Order 2012 tax forms from irs You sell property with an adjusted basis of $19,000. Order 2012 tax forms from irs You have selling expenses of $1,000. Order 2012 tax forms from irs The buyer assumes your existing mortgage of $15,000 and agrees to pay you $10,000 (a cash down payment of $2,000 and $2,000 (plus 8% interest) in each of the next 4 years). Order 2012 tax forms from irs The selling price is $25,000 ($15,000 + $10,000). Order 2012 tax forms from irs Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). Order 2012 tax forms from irs The contract price is $10,000 ($25,000 − $15,000 mortgage). Order 2012 tax forms from irs Your gross profit percentage is 50% ($5,000 ÷ $10,000). Order 2012 tax forms from irs You report half of each $2,000 payment received as gain from the sale. Order 2012 tax forms from irs You also report all interest you receive as ordinary income. Order 2012 tax forms from irs Mortgage more than basis. Order 2012 tax forms from irs   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. Order 2012 tax forms from irs The part of the mortgage greater than your basis is treated as a payment received in the year of sale. Order 2012 tax forms from irs   To figure the contract price, subtract the mortgage from the selling price. Order 2012 tax forms from irs This is the total amount (other than interest) you will receive directly from the buyer. Order 2012 tax forms from irs Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). Order 2012 tax forms from irs The contract price is then the same as your gross profit from the sale. Order 2012 tax forms from irs    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. Order 2012 tax forms from irs Example. Order 2012 tax forms from irs The selling price for your property is $9,000. Order 2012 tax forms from irs The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. Order 2012 tax forms from irs Your adjusted basis in the property is $4,400. Order 2012 tax forms from irs You have selling expenses of $600, for a total installment sale basis of $5,000. Order 2012 tax forms from irs The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). Order 2012 tax forms from irs This amount is included in the contract price and treated as a payment received in the year of sale. Order 2012 tax forms from irs 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%. Order 2012 tax forms from irs Report 100% of each payment (less interest) as gain from the sale. Order 2012 tax forms from irs 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. Order 2012 tax forms from irs Buyer assumes other debts. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs   If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. Order 2012 tax forms from irs Compare the debt to your installment sale basis in the property being sold. Order 2012 tax forms from irs If the debt is less than your installment sale basis, none of it is treated as a payment. Order 2012 tax forms from irs If it is more, only the difference is treated as a payment. Order 2012 tax forms from irs 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. Order 2012 tax forms from irs These rules are the same as the rules discussed earlier under Buyer assumes mortgage . Order 2012 tax forms from irs However, they apply only to the following types of debt the buyer assumes. Order 2012 tax forms from irs Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. Order 2012 tax forms from irs Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs The value of the assumed debt is then considered a payment to you in the year of sale. Order 2012 tax forms from irs Property used as a payment. Order 2012 tax forms from irs   If you receive property rather than money from the buyer, it is still considered a payment in the year received. Order 2012 tax forms from irs However, see Trading property for like-kind property , later. Order 2012 tax forms from irs Generally, the amount of the payment is the property's FMV on the date you receive it. Order 2012 tax forms from irs Exception. Order 2012 tax forms from irs   If the property the buyer gives you is payable on demand or readily tradable (see examples later), the amount you should consider as payment in the year received is: The FMV of the property on the date you receive it if you use the cash method of accounting, The face amount of the obligation on the date you receive it if you use an accrual method of accounting, or The stated redemption price at maturity less any original issue discount (OID) or, if there is no OID, the stated redemption price at maturity appropriately discounted to reflect total unstated interest. Order 2012 tax forms from irs See Unstated interest , later. Order 2012 tax forms from irs Examples. Order 2012 tax forms from irs If you receive a note from the buyer as payment, and the note stipulates that you can demand payment from the buyer at any time, the note is payable on demand. Order 2012 tax forms from irs If you receive marketable securities from the buyer as payment, and you can sell the securities on an established securities market (such as the New York Stock Exchange) at any time, the securities are readily tradable. Order 2012 tax forms from irs In these examples, use the above rules to determine the amount you should consider as payment in the year received. Order 2012 tax forms from irs Debt not payable on demand. Order 2012 tax forms from irs   Any evidence of debt you receive from the buyer that is not payable on demand is not considered a payment. Order 2012 tax forms from irs This is true even if the debt is guaranteed by a third party, including a government agency. Order 2012 tax forms from irs Fair market value (FMV). Order 2012 tax forms from irs   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. Order 2012 tax forms from irs Third-party note. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs 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. Order 2012 tax forms from irs The excess of the note's face value over its FMV is interest. Order 2012 tax forms from irs Exclude this interest in determining the selling price of the property. Order 2012 tax forms from irs However, see Exception under Property used as a payment , earlier. Order 2012 tax forms from irs Example. Order 2012 tax forms from irs You sold real estate in an installment sale. Order 2012 tax forms from irs As part of the down payment, the buyer assigned to you a $50,000, 8% third-party note. Order 2012 tax forms from irs The FMV of the third-party note at the time of the sale was $30,000. Order 2012 tax forms from irs This amount, not $50,000, is a payment to you in the year of sale. Order 2012 tax forms from irs 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. Order 2012 tax forms from irs The remaining 40% is interest taxed as ordinary income. Order 2012 tax forms from irs Bond. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs For more information on the amount you should treat as a payment, see Exception under Property used as a payment , earlier. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs However, see Exception under Property used as a payment , earlier. Order 2012 tax forms from irs Buyer's note. Order 2012 tax forms from irs   The buyer's note (unless payable on demand) is not considered payment on the sale. Order 2012 tax forms from irs However, its full face value is included when figuring the selling price and the contract price. Order 2012 tax forms from irs Payments you receive on the note are used to figure your gain in the year received. Order 2012 tax forms from irs Sale to a related person. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs For information on these rules, see the Instructions for Form 6252 and Sale to a Related Person in Publication 537. Order 2012 tax forms from irs Trading property for like-kind property. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs See Like-Kind Exchanges in chapter 8 for a discussion of like-kind property. Order 2012 tax forms from irs   If, in addition to like-kind property, you receive an installment obligation in the exchange, the following rules apply to determine installment sale income each year. Order 2012 tax forms from irs The contract price is reduced by the FMV of the like-kind property received in the trade. Order 2012 tax forms from irs The gross profit is reduced by any gain on the trade that can be postponed. Order 2012 tax forms from irs Like-kind property received in the trade is not considered payment on the installment obligation. Order 2012 tax forms from irs Unstated interest. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs Interest provided in the contract is called stated interest. Order 2012 tax forms from irs   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. Order 2012 tax forms from irs If Internal Revenue Code section 483 applies to the contract, this interest is called unstated interest. Order 2012 tax forms from irs   If Internal Revenue Code section 1274 applies to the contract, this interest is called original issue discount (OID). Order 2012 tax forms from irs   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. Order 2012 tax forms from irs Therefore, the buyer cannot deduct the unstated interest. Order 2012 tax forms from irs The seller must report the unstated interest as income. Order 2012 tax forms from irs 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. Order 2012 tax forms from irs   If the debt is subject to the Internal Revenue Code section 483 rules and is also subject to the below-market loan rules, such as a gift loan, compensation-related loan or corporation-shareholder loan, then both parties are subject to the below-market loan rules rather than the unstated interest rules. Order 2012 tax forms from irs   Unstated interest reduces the stated selling price of the property and the buyer's basis in the property. Order 2012 tax forms from irs It increases the seller's interest income and the buyer's interest expense. Order 2012 tax forms from irs   In general, an installment sale contract provides for adequate stated interest if the stated interest rate (based on an appropriate compounding period) is at least equal to the applicable federal rate (AFR). Order 2012 tax forms from irs    The AFRs are published monthly in the Internal Revenue Bulletin (IRB). Order 2012 tax forms from irs You can get this information by contacting an IRS office. Order 2012 tax forms from irs IRBs are also available at IRS. Order 2012 tax forms from irs gov. Order 2012 tax forms from irs More information. Order 2012 tax forms from irs   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Order 2012 tax forms from irs Example. Order 2012 tax forms from irs You sell property at a contract price of $6,000 and your gross profit is $1,500. Order 2012 tax forms from irs Your gross profit percentage is 25% ($1,500 ÷ $6,000). Order 2012 tax forms from irs 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. Order 2012 tax forms from irs The remainder (balance) of each payment is the tax-free return of your adjusted basis. Order 2012 tax forms from irs Example On January 3, 2013, you sold your farm, including the home, farm land and buildings. Order 2012 tax forms from irs You received $50,000 down and the buyer's note for $200,000. Order 2012 tax forms from irs In addition, the buyer assumed an outstanding $50,000 mortgage on the farm land. Order 2012 tax forms from irs The total selling price was $300,000. Order 2012 tax forms from irs The note payments of $25,000 each, plus adequate interest, are due every July 1 and January 1, beginning in July 2013. Order 2012 tax forms from irs Your selling expenses were $15,000. Order 2012 tax forms from irs Adjusted basis and depreciation. Order 2012 tax forms from irs   The adjusted basis and depreciation claimed on each asset sold are as follows:   Depreciation Adjusted Asset Claimed Basis Home* -0- $33,743 Farm land -0- 73,610 Buildings $31,500 35,130 * Owned and used as main home for at least 2 of the 5 years prior to the sale Gain on each asset. Order 2012 tax forms from irs   The following schedule shows the assets included in the sale, each asset's selling price based on its respective value, the selling expense allocated to each asset, the adjusted basis of each asset, and the gain on each asset. Order 2012 tax forms from irs The selling expense for each asset is 5% of the selling price ($15,000 selling expense ÷ $300,000 selling price). Order 2012 tax forms from irs   Selling Selling Adjusted     Price Expense Basis Gain Home* $60,000 $3,000 $33,743 $23,257 Farm land  165,000  8,250  73,610  83,140 Buildings 75,000 3,750 35,130 36,120   $300,000 $15,000 $142,483 $142,517 * Owned and used as main home for at least 2 of the 5 years prior to the sale Depreciation recapture. Order 2012 tax forms from irs   The buildings are section 1250 property. Order 2012 tax forms from irs There is no depreciation recapture income for them because they were depreciated using the straight line method. Order 2012 tax forms from irs See chapter 9 for more information on depreciation recapture. Order 2012 tax forms from irs   Special rules may apply when you sell section 1250 assets depreciated under the straight line method. Order 2012 tax forms from irs See the Unrecaptured Section 1250 Gain Worksheet in the Instructions for Schedule D (Form 1040). Order 2012 tax forms from irs See chapter 3 of Publication 544, Sales and Other Dispositions of Assets, for more information on section 1250 assets. Order 2012 tax forms from irs Installment sale basis and gross profit. Order 2012 tax forms from irs   The following table shows each asset reported on the installment method, its selling price, installment sale basis, and gross profit. Order 2012 tax forms from irs     Installment     Selling Sale Gross   Price Basis Profit Farm land $165,000 $73,610 $83,140 Buildings 75,000 35,130 36,120   $240,000 $108,740 $119,260 Section 1231 gains. Order 2012 tax forms from irs   The gain on the farm land and buildings is reported as section 1231 gains. Order 2012 tax forms from irs See Section 1231 Gains and Losses in chapter 9. Order 2012 tax forms from irs Contract price and gross profit percentage. Order 2012 tax forms from irs   The contract price is $250,000 for the part of the sale reported on the installment method. Order 2012 tax forms from irs This is the selling price ($300,000) minus the mortgage assumed ($50,000). Order 2012 tax forms from irs   Gross profit percentage for the sale is 47. Order 2012 tax forms from irs 70% ($119,260 gross profit ÷ $250,000 contract price). Order 2012 tax forms from irs The gross profit percentage for each asset is figured as follows:   Percent Farm land ($83,140 ÷ $250,000) 33. Order 2012 tax forms from irs 256 Buildings ($36,120 ÷ $250,000) 14. Order 2012 tax forms from irs 448 Total 47. Order 2012 tax forms from irs 70 Figuring the gain to report on the installment method. Order 2012 tax forms from irs   One hundred percent (100%) of each payment is reported on the installment method. Order 2012 tax forms from irs The total amount received on the sale in 2013 is $75,000 ($50,000 down payment + $25,000 payment on July 1). Order 2012 tax forms from irs The installment sale part of the total payments received in 2013 is also $75,000. Order 2012 tax forms from irs Figure the gain to report for each asset by multiplying its gross profit percentage times $75,000. Order 2012 tax forms from irs   Income Farm land—33. Order 2012 tax forms from irs 256% × $75,000 $24,942 Buildings—14. Order 2012 tax forms from irs 448% × $75,000 10,836 Total installment income for 2013 $35,778 Reporting the sale. Order 2012 tax forms from irs   Report the installment sale on Form 6252. Order 2012 tax forms from irs Then report the amounts from Form 6252 on Form 4797 and Schedule D (Form 1040). Order 2012 tax forms from irs Attach a separate page to Form 6252 that shows the computations in the example. Order 2012 tax forms from irs If you sell depreciable business property, prepare Form 4797 first in order to figure the amount to enter on line 12 of Part I, Form 6252. Order 2012 tax forms from irs Section 1231 gains. Order 2012 tax forms from irs   The gains on the farm land and buildings are section 1231 gains. Order 2012 tax forms from irs They may be reported as either capital or ordinary gain depending on the net balance when combined with other section 1231 losses. Order 2012 tax forms from irs A net 1231 gain is capital gain and a net 1231 loss is an ordinary loss. Order 2012 tax forms from irs Installment income for years after 2013. Order 2012 tax forms from irs   You figure installment income for the years after 2013 by applying the same gross profit percentages to the payments you receive each year. Order 2012 tax forms from irs If you receive $50,000 during the year, the entire $50,000 is considered received on the installment sale (100% × $50,000). Order 2012 tax forms from irs You realize income as follows:   Income Farm land—33. Order 2012 tax forms from irs 256% × $50,000 $16,628 Buildings—14. Order 2012 tax forms from irs 448% × $50,000 7,224 Total installment income $23,852   In this example, no gain ever is recognized from the sale of your home. Order 2012 tax forms from irs You will combine your section 1231 gains from this sale with section 1231 gains and losses from other sales in each of the later years to determine whether to report them as ordinary or capital gains. Order 2012 tax forms from irs The interest received with each payment will be included in full as ordinary income. Order 2012 tax forms from irs Summary. Order 2012 tax forms from irs   The installment income (rounded to the nearest dollar) from the sale of the farm is reported as follows: Selling price $190,000 Minus: Installment basis (108,740) Gross profit $81,260     Gain reported in 2012 (year of sale) $35,778 Gain reported in 2013:   $50,000 × 47. Order 2012 tax forms from irs 70% 23,850 Gain reported in 2014:   $50,000 × 47. Order 2012 tax forms from irs 70% 23,850 Gain reported in 2015:   $50,000 × 47. Order 2012 tax forms from irs 70% 23,850 Gain reported in 2016:   $25,000 × 47. Order 2012 tax forms from irs 70% 11,925 Total gain reported $119,253 Prev  Up  Next   Home   More Online Publications