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Www onlinetaxes h&rblock com 12. Www onlinetaxes h&rblock com   How To Get Tax Help Table of Contents 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. Www onlinetaxes h&rblock com Free help with your tax return. Www onlinetaxes h&rblock com   You can get free help preparing your return nationwide from IRS-certified volunteers. Www onlinetaxes h&rblock com The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Www onlinetaxes h&rblock com The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Www onlinetaxes h&rblock com 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. Www onlinetaxes h&rblock com In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Www onlinetaxes h&rblock com To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Www onlinetaxes h&rblock com gov, download the IRS2Go app, or call 1-800-906-9887. Www onlinetaxes h&rblock com   As part of the TCE program, AARP offers the Tax-Aide counseling program. Www onlinetaxes h&rblock com To find the nearest AARP Tax-Aide site, visit AARP's website at www. Www onlinetaxes h&rblock com aarp. Www onlinetaxes h&rblock com org/money/taxaide or call 1-888-227-7669. Www onlinetaxes h&rblock com For more information on these programs, go to IRS. Www onlinetaxes h&rblock com gov and enter “VITA” in the search box. Www onlinetaxes h&rblock com Internet. Www onlinetaxes h&rblock com    IRS. Www onlinetaxes h&rblock com gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Www onlinetaxes h&rblock com Download the free IRS2Go app from the iTunes app store or from Google Play. Www onlinetaxes h&rblock com 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. Www onlinetaxes h&rblock com Check the status of your 2013 refund with the Where's My Refund? application on IRS. Www onlinetaxes h&rblock com gov or download the IRS2Go app and select the Refund Status option. Www onlinetaxes h&rblock com The IRS issues more than 9 out of 10 refunds in less than 21 days. Www onlinetaxes h&rblock com 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. Www onlinetaxes h&rblock com You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Www onlinetaxes h&rblock com The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Www onlinetaxes h&rblock com Use the Interactive Tax Assistant (ITA) to research your tax questions. Www onlinetaxes h&rblock com No need to wait on the phone or stand in line. Www onlinetaxes h&rblock com 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. Www onlinetaxes h&rblock com When you reach the response screen, you can print the entire interview and the final response for your records. Www onlinetaxes h&rblock com New subject areas are added on a regular basis. Www onlinetaxes h&rblock com  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Www onlinetaxes h&rblock com gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Www onlinetaxes h&rblock com You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Www onlinetaxes h&rblock com The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Www onlinetaxes h&rblock com 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. Www onlinetaxes h&rblock com 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. Www onlinetaxes h&rblock com You can also ask the IRS to mail a return or an account transcript to you. Www onlinetaxes h&rblock com Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Www onlinetaxes h&rblock com gov or by calling 1-800-908-9946. Www onlinetaxes h&rblock com Tax return and tax account transcripts are generally available for the current year and the past three years. Www onlinetaxes h&rblock com Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Www onlinetaxes h&rblock com Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Www onlinetaxes h&rblock com 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. Www onlinetaxes h&rblock com Check the status of your amended return using Where's My Amended Return? Go to IRS. Www onlinetaxes h&rblock com gov and enter Where's My Amended Return? in the search box. Www onlinetaxes h&rblock com You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Www onlinetaxes h&rblock com It can take up to 3 weeks from the date you mailed it to show up in our system. Www onlinetaxes h&rblock com Make a payment using one of several safe and convenient electronic payment options available on IRS. Www onlinetaxes h&rblock com gov. Www onlinetaxes h&rblock com Select the Payment tab on the front page of IRS. Www onlinetaxes h&rblock com gov for more information. Www onlinetaxes h&rblock com Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Www onlinetaxes h&rblock com Figure your income tax withholding with the IRS Withholding Calculator on IRS. Www onlinetaxes h&rblock com gov. Www onlinetaxes h&rblock com 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. Www onlinetaxes h&rblock com Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Www onlinetaxes h&rblock com gov. Www onlinetaxes h&rblock com Request an Electronic Filing PIN by going to IRS. Www onlinetaxes h&rblock com gov and entering Electronic Filing PIN in the search box. Www onlinetaxes h&rblock com Download forms, instructions and publications, including accessible versions for people with disabilities. Www onlinetaxes h&rblock com Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Www onlinetaxes h&rblock com gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Www onlinetaxes h&rblock com An employee can answer questions about your tax account or help you set up a payment plan. Www onlinetaxes h&rblock com Before you visit, check the Office Locator on IRS. Www onlinetaxes h&rblock com gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Www onlinetaxes h&rblock com If you have a special need, such as a disability, you can request an appointment. Www onlinetaxes h&rblock com Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Www onlinetaxes h&rblock com Apply for an Employer Identification Number (EIN). Www onlinetaxes h&rblock com Go to IRS. Www onlinetaxes h&rblock com gov and enter Apply for an EIN in the search box. Www onlinetaxes h&rblock com Read the Internal Revenue Code, regulations, or other official guidance. Www onlinetaxes h&rblock com Read Internal Revenue Bulletins. Www onlinetaxes h&rblock com Sign up to receive local and national tax news and more by email. Www onlinetaxes h&rblock com Just click on “subscriptions” above the search box on IRS. Www onlinetaxes h&rblock com gov and choose from a variety of options. Www onlinetaxes h&rblock com Phone. Www onlinetaxes h&rblock com    You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Www onlinetaxes h&rblock com Download the free IRS2Go app from the iTunes app store or from Google Play. Www onlinetaxes h&rblock com Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Www onlinetaxes h&rblock com gov, or download the IRS2Go app. Www onlinetaxes h&rblock com Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Www onlinetaxes h&rblock com The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Www onlinetaxes h&rblock com Most VITA and TCE sites offer free electronic filing. Www onlinetaxes h&rblock com Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Www onlinetaxes h&rblock com Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Www onlinetaxes h&rblock com Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. Www onlinetaxes h&rblock com If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Www onlinetaxes h&rblock com The IRS issues more than 9 out of 10 refunds in less than 21 days. Www onlinetaxes h&rblock com Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Www onlinetaxes h&rblock com Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. Www onlinetaxes h&rblock com The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Www onlinetaxes h&rblock com Note, the above information is for our automated hotline. Www onlinetaxes h&rblock com Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. Www onlinetaxes h&rblock com Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Www onlinetaxes h&rblock com You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Www onlinetaxes h&rblock com It can take up to 3 weeks from the date you mailed it to show up in our system. Www onlinetaxes h&rblock com Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). Www onlinetaxes h&rblock com You should receive your order within 10 business days. Www onlinetaxes h&rblock com Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. Www onlinetaxes h&rblock com If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. Www onlinetaxes h&rblock com Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Www onlinetaxes h&rblock com The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Www onlinetaxes h&rblock com These individuals can also contact the IRS through relay services such as the Federal Relay Service. Www onlinetaxes h&rblock com Walk-in. Www onlinetaxes h&rblock com   You can find a selection of forms, publications and services — in-person. Www onlinetaxes h&rblock com Products. Www onlinetaxes h&rblock com You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Www onlinetaxes h&rblock com Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Www onlinetaxes h&rblock com Services. Www onlinetaxes h&rblock com You can walk in to your local TAC for face-to-face tax help. Www onlinetaxes h&rblock com An employee can answer questions about your tax account or help you set up a payment plan. Www onlinetaxes h&rblock com Before visiting, use the Office Locator tool on IRS. Www onlinetaxes h&rblock com gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. Www onlinetaxes h&rblock com Mail. Www onlinetaxes h&rblock com   You can send your order for forms, instructions, and publications to the address below. Www onlinetaxes h&rblock com You should receive a response within 10 business days after your request is received. Www onlinetaxes h&rblock com Internal Revenue Service 1201 N. Www onlinetaxes h&rblock com Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. Www onlinetaxes h&rblock com The Taxpayer Advocate Service (TAS) is your voice at the IRS. Www onlinetaxes h&rblock com Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Www onlinetaxes h&rblock com   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. Www onlinetaxes h&rblock com We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Www onlinetaxes h&rblock com You face (or your business is facing) an immediate threat of adverse action. Www onlinetaxes h&rblock com You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Www onlinetaxes h&rblock com   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Www onlinetaxes h&rblock com Here's why we can help: TAS is an independent organization within the IRS. Www onlinetaxes h&rblock com Our advocates know how to work with the IRS. Www onlinetaxes h&rblock com Our services are free and tailored to meet your needs. Www onlinetaxes h&rblock com We have offices in every state, the District of Columbia, and Puerto Rico. Www onlinetaxes h&rblock com   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at www. Www onlinetaxes h&rblock com irs. Www onlinetaxes h&rblock com gov/Advocate, or call us toll-free at 1-877-777-4778. Www onlinetaxes h&rblock com   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Www onlinetaxes h&rblock com If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. Www onlinetaxes h&rblock com Low Income Taxpayer Clinics. Www onlinetaxes h&rblock com   Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Www onlinetaxes h&rblock com Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Www onlinetaxes h&rblock com Visit www. Www onlinetaxes h&rblock com irs. Www onlinetaxes h&rblock com gov/Advocate or see IRS Publication 4134, Low Income Taxpayer Clinic List. Www onlinetaxes h&rblock com Prev  Up  Next   Home   More Online Publications
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Life Insurance

Your need for life insurance will change with changes in your life. For example, the arrival of children usually triggers a sharp increase in the amount you need. As children grow older and leave the nest, you will probably need less protection.

Term life insurance policies are the least costly. They pay death benefits but have no cash value if you decide to stop making payments. As the word "term" suggests, these policies are in effect for a specific period of time-one year or until you reach a certain age are common. You can compare life insurance policies online.

Whole life, universal life, and other cash value policies combine a long-term savings and investment product with life insurance. Canceling these policies after only a few years can more than double your life insurance costs.

If you have misplaced a life insurance policy, your state’s insurance commission may be able to help you locate it. Or you can search for it at the Policy Locator. If the insurance company knows that an insured person has died, but cannot locate the beneficiaries, the company must turn the benefits over to the state’s unclaimed property office. Check with that office if you believe that you are due a benefit. You can avoid losing your life insurance policy by alerting the policy beneficiaries and filing a copy with your will.

Disability Insurance

Disability can be more disastrous financially than death. If you are disabled, you lose your earning power, but you still have living expenses and often huge expenses for medical care. Disability insurance helps you replace lost income. Many employers offer some type of disability insurance coverage for employees, or you can get an individual disability insurance policy. There are two types of disability policies: short-term disability (STD) and long-term disability (LTD). Short-term disability policies have a maximum benefit of two years, while long-term disability policies have benefits that can last the rest of your life. When purchasing disability insurance, ask:

  • How is disability defined? Some policies consider you disabled if you are unable to perform the duties of any job. Better plans pay benefits if you are unable to do the usual duties of your own occupation.
  • When do benefits begin? Most plans have a waiting period after an illness before payments begin.
  • How long do benefits last? After the waiting period, payments are usually available till you reach age 65, though shorter or longer terms are also available.
  • What dollar amount is promised? Can benefits be reduced by Social Security disability and workers' compensation payments? Are the benefits adjusted for inflation? Will the policy provider continue making contributions to your pension plan so you have retirement benefits when the disability coverage ends?

For more information on disability insurance, visit Insurance Information Institute or America's Health Insurance Plans.

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