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File ez online Publication 596SP - Introductory Material Table of Contents Acontecimientos Futuros ¿Qué es el Crédito por Ingreso del Trabajo (EIC)? ¿Puedo Reclamar el Crédito por Ingreso del Trabajo (EIC)? ¿Necesito esta Publicación? ¿Hay que Tener un Hijo para Tener Derecho al Crédito por Ingreso del Trabajo (EIC)? ¿Cómo Calculo la Cantidad del Crédito por Ingreso del Trabajo (EIC)? ¿Cómo Puedo Encontrar Rápidamente Información Específica? ¿Hay Ayuda Disponible en Internet? Qué Hay de Nuevo para el año 2013 Recordatorios Acontecimientos Futuros Para la información más actualizada sobre los acontecimientos que afectan la Publicación 596(SP), tales como legislación promulgada después de su publicación, visite www. File ez online irs. File ez online gov/pub596sp, en inglés. File ez online ¿Qué es el Crédito por Ingreso del Trabajo (EIC)? El crédito por ingreso del trabajo (EIC, por sus siglas en inglés) es un crédito tributario para aquellas personas que trabajan y que reciben ingreso del trabajo inferior a $51,567. File ez online Un crédito tributario significa que va a tener más dinero disponible porque reduce la cantidad de impuesto a pagar. File ez online El crédito por ingreso del trabajo (EIC) también podría proporcionarle un reembolso. File ez online ¿Puedo Reclamar el Crédito por Ingreso del Trabajo (EIC)? Para tener derecho al crédito por ingreso del trabajo (EIC), tiene que cumplir determinados requisitos. File ez online Dichos requisitos se resumen en la Tabla 1. File ez online Tabla 1. File ez online Síntesis del Crédito por Ingreso del Trabajo Primero, tiene que cumplir todos los requisitos de esta columna. File ez online Segundo, tiene que cumplir todos los requisitos de una de estas columnas, la que le corresponda. File ez online Tercero, tiene que cumplir el requisito de esta columna. File ez online Capítulo 1. File ez online  Requisitos para Todos Capítulo 2. File ez online  Requisitos que Tiene que Cumplir si Tiene un Hijo Calificado Capítulo 3. File ez online  Requisitos que Tiene que Cumplir si no Tiene un Hijo Calificado Capítulo 4. File ez online  Calcular y Reclamar el Crédito por Ingreso del Trabajo (EIC) 1. File ez online Tiene que tener  ingresos brutos ajustados (AGI, por sus siglas en inglés) inferiores a:  • $46,227 ($51,567 para casados que presentan una declaración conjunta) si tiene tres o más hijos calificados,  • $43,038 ($48,378 para casados que presentan una declaración conjunta) si tiene dos hijos calificados,  • $37,870 ($43,210 para casados que presentan una declaración conjunta) si tiene un hijo calificado o  • $14,340 ($19,680 para casados que presentan una declaración conjunta) si no tiene un hijo calificado. File ez online 2. File ez online Tiene que tener un número de Seguro Social válido. File ez online   3. File ez online Su estado civil para efectos de la declaración no puede ser  “casado que presenta la declaración por separado”. File ez online   4. File ez online Tiene que ser ciudadano de los Estados Unidos o extranjero residente durante todo el año. File ez online   5. File ez online No puede presentar el Formulario 2555 ni el Formulario 2555-EZ (relacionado con el ingreso del trabajo en el extranjero). File ez online   6. File ez online Sus ingresos procedentes de inversiones tienen que ser de $3,300 o menos. File ez online    7. File ez online Tiene que haber recibido ingreso del trabajo. File ez online 8. File ez online Su hijo tiene que cumplir los requisitos de parentesco, edad, residencia y de declaración conjunta. File ez online   9. File ez online Soló una persona puede utilizar su hijo calificado para fines de reclamar el crédito por ingreso del trabajo (EIC). File ez online   10. File ez online Usted no puede ser el hijo calificado de otra persona. File ez online 11. File ez online Tiene que tener por lo menos 25 años de edad pero menos de 65 años de edad. File ez online   12. File ez online Usted no puede ser dependiente de otra persona. File ez online   13. File ez online Usted no puede ser el hijo calificado de otra persona. File ez online   14. File ez online Tiene que haber vivido en los Estados Unidos durante más de la mitad del año. File ez online 15. File ez online Tiene que tener ingresos del trabajo inferiores a:  • $46,227 ($51,567 para casados que presentan una declaración conjunta) si tiene tres o más hijos calificados,  • $43,038 ($48,378 para casados que presentan una declaración conjunta) si tiene dos hijos calificados,  • $37,870 ($43,210 para casados que presentan una declaración conjunta) si tiene un hijo calificado o  • $14,340 ($19,680 para casados que presentan una declaración conjunta) si no tiene un hijo calificado. File ez online ¿Necesito esta Publicación? Algunas personas que presenten el Formulario 1040 tienen que usar la Hoja de Trabajo 1 de esta publicación, en vez de consultar el Paso 2 de las instrucciones para el Formulario 1040, para determinar si pueden reclamar el crédito por ingreso del trabajo (EIC). File ez online Usted se encuentra en esta categoría si alguna de las siguientes situaciones le corresponde para el año 2013. File ez online Presenta el Anexo E (Formulario 1040). File ez online Declara ingresos provenientes del alquiler de bienes inmuebles/muebles que no son utilizados en un oficio o negocio. File ez online Declara ingresos en la línea 21 del Formulario 1040 que provienen del Formulario 8814 (relacionados con la elección de declarar los intereses y dividendos recibidos por un hijo). File ez online Declara una cantidad en la línea 13 del Formulario 1040 que incluye una cantidad del Formulario 4797. File ez online Si ninguna de las situaciones que aparecen anteriormente le corresponde, las instrucciones del formulario de impuestos contienen toda la información que necesita para saber si puede reclamar el crédito por ingreso del trabajo (EIC) y para calcular la cantidad del mismo. File ez online No necesita esta publicación, pero puede leerla para saber si puede reclamar el crédito por ingreso del trabajo (EIC) y para aprender más sobre este crédito. File ez online ¿Hay que Tener un Hijo para Tener Derecho al Crédito por Ingreso del Trabajo (EIC)? No. File ez online Puede reunir los requisitos del crédito por ingreso del trabajo (EIC) aunque no tenga un hijo calificado si usted tiene como mínimo 25 años de edad pero menos de 65 años y tiene ingresos del trabajo inferiores a $14,340 ($19,680 si es casado que presenta una declaración conjunta). File ez online Vea el capítulo 3 para información adicional. File ez online ¿Cómo Calculo la Cantidad del Crédito por Ingreso del Trabajo (EIC)? Si puede reclamar el crédito por ingreso del trabajo (EIC), tiene la opción de solicitar que el IRS le calcule la cantidad del crédito o puede calcularlo usted mismo. File ez online Para calcularlo usted mismo, puede llenar la hoja de trabajo que se encuentra en las instrucciones del formulario que presente. File ez online Para saber cómo solicitar que el IRS le calcule la cantidad del crédito, vea el capítulo 4. File ez online ¿Cómo Puedo Encontrar Rápidamente Información Específica? Puede utilizar el índice para buscar información específica. File ez online En la mayoría de los casos, el índice hace referencia a títulos, tablas u hojas de trabajo. File ez online ¿Hay Ayuda Disponible en Internet? Sí. File ez online Puede utilizar el Asistente EITC en el sitio web www. File ez online irs. File ez online gov/espanol para saber si tiene derecho al crédito. File ez online El Asistente EITC está disponible en español y en inglés. File ez online Qué Hay de Nuevo para el año 2013 La cantidad de ingresos del trabajo ha aumentado. File ez online La cantidad máxima de ingresos que usted puede ganar y aún obtener el crédito ha aumentado. File ez online Tal vez pueda reclamar el crédito si: Tiene tres o más hijos calificados y gana menos de $46,227 ($51,567 si es casado que presenta una declaración conjunta), Tiene dos hijos calificados y gana menos de $43,038 ($48,378 si es casado que presenta una declaración conjunta), Tiene un hijo calificado y gana menos de $37,870 ($43,210 si es casado que presenta una declaración conjunta) o No tiene un hijo calificado y gana menos de $14,340 ($19,680 si es casado que presenta una declaración conjunta). File ez online Además, tiene que tener ingresos brutos ajustados inferiores a la cantidad que le corresponda de la lista anterior. File ez online Para más información, vea los Requisitos 1 y 15. File ez online La cantidad de ingresos de inversiones ha aumentado. File ez online La cantidad máxima de ingresos de inversiones que usted puede ganar y aún obtener el crédito ha aumentado a $3,300. File ez online Vea el Requisito 6 —Tiene que tener ingresos de inversiones de $3,300 o menos . File ez online Recordatorios Aumento del crédito por ingreso del trabajo (EIC) en ciertas declaraciones conjuntas. File ez online  Una persona casada que presente una declaración conjunta podría recibir un crédito mayor que el que recibe otra persona que tenga los mismos ingresos pero con un estado civil diferente para efectos de la declaración. File ez online Por lo tanto, la Tabla del Crédito por Ingreso del Trabajo (EIC) tiene columnas distintas para las personas casadas que presenten una declaración conjunta que para los demás. File ez online Cuando busque su crédito por ingreso del trabajo en la Tabla del Crédito por Ingreso del Trabajo (EIC), asegúrese de usar la columna correcta para su estado civil para efectos de la declaración y el número de hijos que tenga. File ez online El crédito por ingreso del trabajo (EIC) no afecta ciertos pagos de bienestar social. File ez online  Todo reembolso que reciba por el crédito por ingreso del trabajo (EIC) no se considera ingreso al determinar si usted u otra persona tiene derecho a recibir beneficios de los programas de asistencia social que se indican a continuación, ni al determinar la cantidad que usted u otra persona puede recibir de algún programa federal, o algún programa estatal o local que recibe todo o parte de sus fondos de fuentes federales. File ez online Tales programas incluyen los siguientes: Asistencia Temporal para Familias Necesitadas (TANF, por sus siglas en inglés). File ez online Seguro Medicaid. File ez online Seguridad de Ingreso Suplementario (SSI, por sus siglas en inglés). File ez online Programas de Asistencia Suplementaria de Alimentación (SNAP, por sus siglas en inglés) (cupones para alimentos). File ez online Viviendas para personas de bajos ingresos. File ez online Además, cuando determine la elegibilidad, el reembolso no podrá ser contado como una fuente de ingresos, durante por lo menos 12 meses después que usted lo reciba. File ez online Hable con el coordinador de beneficios local para averiguar si su reembolso afectará sus beneficios. File ez online No se olvide del crédito estatal. File ez online  Si reúne los requisitos para reclamar el crédito por ingreso del trabajo (EIC) en la declaración de impuestos federales sobre los ingresos, podría tener también derecho a reclamar un crédito parecido en la declaración de impuestos estatales o locales sobre los ingresos. File ez online Para ver una lista de estados que ofrecen el crédito estatal por ingreso del trabajo, visite www. File ez online irs. File ez online gov/eitc. File ez online En caso de que el IRS cuestione el crédito por ingreso del trabajo (EIC). File ez online  El IRS puede pedirle que entregue documentos para comprobar que usted tiene derecho al crédito por ingreso del trabajo (EIC). File ez online Le informaremos cuáles documentos debe enviarnos. File ez online Éstos pueden incluir actas de nacimiento, expedientes académicos, expedientes médicos, etc. File ez online El proceso para determinar su derecho al crédito demorará su reembolso. File ez online Fotografías de niños desaparecidos. File ez online  El IRS se complace en colaborar con el Centro Nacional de Niños Desaparecidos y Explotados (National Center for Missing and Exploited Children). File ez online Esta publicación puede contener fotografías de niños desaparecidos seleccionadas por el Centro en páginas que de otra manera estarían en blanco. File ez online Usted puede ayudar a que estos niños regresen a su hogar si al mirar sus fotografías los identifica y llama gratis al 1-800-THE-LOST (1-800-843-5678). File ez online Comentarios y sugerencias. File ez online  Agradeceremos sus comentarios acerca de esta publicación, así como sus sugerencias para ediciones futuras. File ez online Nos puede escribir a la dirección siguiente:  Internal Revenue Service Tax Forms and Publications 1111 Constitution Ave. File ez online NW, IR-6526 Washington, DC 20224 Contestamos muchas cartas por teléfono. File ez online Por lo tanto, sería útil que incluyera en la correspondencia su número de teléfono, con el código de área, para llamar durante el día. File ez online Usted nos puede enviar comentarios desde la página web en www. File ez online irs. File ez online gov/formspubs, en inglés. File ez online Pulse sobre “More Information,” (Más información) y seleccionando “Give us feedback. File ez online ” (Proveer comentarios). File ez online Aunque no podemos contestar individualmente cada comentario, agradecemos sus comentarios y sugerencias y los tendremos en cuenta para ediciones futuras de nuestros productos tributarios. File ez online Para pedir formularios y publicaciones. File ez online  Visite www. File ez online irs. File ez online gov/formspubs para descargar formularios y publicaciones, llame al 1-800-829-3676 para pedir formularios y publicaciones o escriba a la dirección a continuación para recibir una respuesta dentro de los 10 días después de recibir su solicitud. File ez online  Internal Revenue Service 1201 N. File ez online Mitsubishi Motorway Bloomington, IL 61705-6613 Preguntas sobre los impuestos. File ez online  Si tiene una pregunta sobre los impuestos, verifique la información disponible en IRS. File ez online gov/espanol o llame al 1-800-829-1040. File ez online No podemos contestar preguntas sobre impuestos enviadas a ninguna de las dos direcciones anteriores. File ez online Prev  Up  Next   Home   More Online Publications
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Going Green- Be a Green Consumer

"Going Green" means practicing an environmentally friendly and ecologically responsible lifestyle as well as making decisions to help protect the environment and sustain natural resources. There are lots of reasons to consider going green—too much trash, greenhouse gases, air and water pollution, damage to the ozone layer, and saving money. For example, switching all the light bulbs in a home from conventional incandescent light bulbs to compact fluorescent light (CFL) bulbs could save about $40 over the life of the bulb. Other examples include:

  • Turning your thermostat down two degrees in winter and up two degrees in summer.
  • Making sure your walls and ceilings are well insulated.
  • Replacing bathroom and kitchen faucets with low-flow models.

Make Greener Product Choices

Buying only what you need is the first step to go green, but when you buy, looking for greener products and using products in ways that respect the environment can have a big impact — on the health of your family, pets and the planet. 

The U.S. Environmental Protection Agency (EPA) has a green products web portal to help you navigate the complex world of green products. You can use this portal to find links and information related to greener products from EPA and other sources.  

The EPA has a number of eco-labeling partnership programs to help you identify greener, safer, and more efficient products. The standards behind these labels are based on scientific expertise and use the best available data. Look for these EPA program labels when buying:

  • EnergyStar - for energy efficient electronics and appliances
  • WaterSense - water efficient products
  • Design for the Environment (DfE) - safer household cleaners and other products. DfE allows products that have been determined to be safer for human health and the environment and effective to carry the DfE label.
  • SmartWay Certified Vehicle - cleaner, more fuel efficient cars and trucks

By making greener product choices you are saving money on utilities and fuel, supporting companies that are driving change and most importantly — you are joining millions of people helping to protect public health and the environment.

You can also choose to buy organic or locally produced food and eco-friendly clothing. For more information about national standards covering organic food, contact the U.S. Department of Agriculture’s Agricultural Marketing Service. There are no national standards for organic clothing, but some fabrics to consider include organic cotton, bark cloth, bamboo, and organic wool.

Beware: Verify Green Marketing Claims

The number of eco-label products,  claiming that they are "eco-friendly" or "all-natural", has increased due to a growing demand for "green products. While this is a positive trend, you may have concerns about "greenwashing" and uncertainty about which environmental standards and labels can be trusted. The Federal Trade Commission's Green Guides provide guidance for companies that make marketing claims regarding the environmental attributes of their products. Here are some tips to help you sort through eco-label marketing:

  • Look for specific (ex. "contains 75% post-consumer recycled materials") rather than vague statements about environmental impact.
  • Determine whether the green marketing claims apply to the packaging, the product, or both.
  • Beware of fake third-party certification. Visit Consumer Reports' website to find reliable environmental labels.

For more information about environmental advertising, contact the FTC.

Reusing and Recycling

Along with buying greener products, you can make a big impact by using the products you buy in ways that respect the environment by: using fewer products and following instructions for product use; conserving energy, water, and materials; recycling items made of materials such as glass, metal, plastic, or paper or disposing of products properly. 

Many utility companies now offer curbside recycling programs that provide U.S. households with a responsible and convenient way to recycle materials. To locate information on recycling services and efforts in your area, call the Earth 911 toll free hotline, 1-800-CLEANUP (253-2687). 

It is easy to safely dispose of many products. Others, such as car batteries, cell phones, televisions, paints, oils, and solvents, require special handling. You can responsibly dispose of these products through your local household hazardous wasters (HHW) collection facility or at your local government's annual HHW collection day. Some items may be given to charitable organizations or even dropped off at electronics retailers. Contact the Environmental Protection Agency (EPA) to help you make the right decisions about the best way to dispose of waste.

The File Ez Online

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