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Filing 1040ez Form

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Filing 1040ez Form

Filing 1040ez form 30. Filing 1040ez form   Cómo Calcular los Impuestos Table of Contents Introduction Cómo Calcular los Impuestos Impuesto Mínimo Alternativo (AMT) Impuestos Calculados por el IRS Cómo Presentar la Declaración Introduction Una vez que haya calculado los ingresos y deducciones según se explica en las Partes Uno a Cinco, calcule los impuestos. Filing 1040ez form Este capítulo trata sobre los temas siguientes: Los pasos a seguir para calcular los impuestos, Un impuesto adicional que podría verse obligado a pagar, el cual se denomina “impuesto mínimo alternativo” (AMT, por sus siglas en inglés) y Las condiciones que tiene que cumplir si desea que el IRS le calcule los impuestos. Filing 1040ez form Cómo Calcular los Impuestos El impuesto sobre los ingresos se basa en los ingresos tributables. Filing 1040ez form Después de haber calculado el impuesto sobre los ingresos y el impuesto mínimo alternativo, si lo hubiera, reste los créditos tributarios y sume cualquier otro impuesto adeudado. Filing 1040ez form El resultado es el total de los impuestos. Filing 1040ez form Compare el total de los impuestos con el total de los pagos que ha efectuado para saber si tiene derecho a un reembolso o si tiene que efectuar un pago. Filing 1040ez form Esta sección expone los puntos generales para calcular el impuesto. Filing 1040ez form Puede encontrar instrucciones detalladas en las Instrucciones de los Formularios 1040EZ, 1040A y 1040. Filing 1040ez form Si no está seguro de qué formulario tributario debe presentar, vea ¿Qué Formulario Debo Usar? , en el capítulo 1. Filing 1040ez form Impuestos. Filing 1040ez form   La mayor parte de los contribuyentes utiliza la Tabla de Impuestos o la Hoja de Trabajo para el Cálculo del Impuesto para calcular el impuesto sobre el ingreso. Filing 1040ez form No obstante, existen métodos especiales si los ingresos incluyen cualquiera de los siguientes puntos: Una ganancia neta de capital. Filing 1040ez form (Vea el capítulo 16). Filing 1040ez form Dividendos calificados gravados a la misma tasa que una ganancia neta de capital. Filing 1040ez form (Vea los capítulos 8 y 16). Filing 1040ez form Distribuciones de suma global. Filing 1040ez form (Vea el capítulo 10). Filing 1040ez form Ingresos procedentes de la agricultura o pesca. Filing 1040ez form (Vea el Anexo J del Formulario 1040, Income Averaging for Farmers and Fishermen (Cómo calcular el promedio de ingresos para los agricultores y pescadores), en inglés. Filing 1040ez form Ingresos de inversiones de más de $2,000 para determinados hijos. Filing 1040ez form (Vea el capítulo 31). Filing 1040ez form Elección del padre o de la madre de declarar los intereses y dividendos de un hijo. Filing 1040ez form (Vea el capítulo 31). Filing 1040ez form Exclusión de ingresos devengados en el extranjero o exclusión por concepto de vivienda en el extranjero. Filing 1040ez form (Vea el Formulario 2555, Foreign Earned Income (Ingresos devengados en el extranjero) o el Formulario 2555-EZ, Foreign Earned Income Exclusion (Exclusión de ingresos devengados en el extranjero) y el Foreign Earned Income Tax Worksheet (Hoja de trabajo para los impuestos sobre ingresos devengados en el extranjero) de las Instrucciones del Formulario 1040), todos en inglés. Filing 1040ez form Créditos. Filing 1040ez form   Luego de haber calculado el impuesto sobre los ingresos y todo impuesto mínimo alternativo (explicado más adelante), verifique si tiene derecho a algún crédito tributario. Filing 1040ez form Puede encontrar información para saber si tiene derecho a estos créditos tributarios en los capítulos 32 al 37 y en las instrucciones de los formularios de impuestos. Filing 1040ez form La tabla a continuación muestra los créditos que tal vez pueda restar del impuesto y le indica en dónde puede encontrar más información sobre cada crédito. Filing 1040ez form CRÉDITOS Para información sobre: Vea el   capítulo: Adopción 37 Vehículo motorizado alternativo 37 Propiedad para reabastecimiento de vehículos con combustible alternativo 37 Cuidado de menores y dependientes 32 Crédito tributario por hijos 34 Crédito para titulares de bonos de crédito tributario 37 Estudios 35 Ancianos o personas incapacitadas 33 Crédito por vehículos eléctricos 37 Impuestos del extranjero 37 Intereses hipotecarios 37 Impuesto mínimo de años anteriores 37 Energía residencial 37 Aportaciones a arreglos de ahorros para la jubilación 37   Hay algunos créditos (como el crédito por ingreso del trabajo) que no aparecen en la lista porque se consideran pagos. Filing 1040ez form Vea Pagos , más adelante. Filing 1040ez form   Existen otros créditos no abordados en esta publicación. Filing 1040ez form Éstos abarcan los siguientes créditos: Crédito general para negocios, el cual se compone de distintos créditos relacionados con los negocios. Filing 1040ez form Éstos suelen declararse en el Formulario 3800, General Business Credit (Crédito general para negocios) y se explican en el capítulo 4 de la Publicación 334, Tax Guide for Small Business (Guía tributaria para pequeños negocios), ambos en inglés. Filing 1040ez form Crédito por producción de electricidad renovable, carbón refinado y carbón de yacimientos en tierras pertenecientes a indios para electricidad y carbón refinado producidos en instalaciones puestas en funcionamiento después del 22 de octubre de 2004 (después del 2 de octubre de 2008, para la electricidad producida mediante la energía hidrocinética renovable y la energía marina renovable) y carbón de yacimientos en tierras pertenecientes a indios producido en instalaciones puestas en funcionamiento después del 8 de agosto de 2005. Filing 1040ez form Vea la Parte II del Formulario 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit (Crédito por producción de electricidad renovable, carbón refinado y carbón de yacimientos en tierras pertenecientes a indios), en inglés. Filing 1040ez form Crédito de oportunidad laboral. Filing 1040ez form Vea el Formulario 5884, Work Opportunity Credit (Crédito de oportunidad laboral), en inglés. Filing 1040ez form Crédito por impuestos del Seguro Social y Medicare del empleador pagados sobre ciertas propinas del empleado. Filing 1040ez form Vea el Formulario 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips (Crédito por impuestos del Seguro Social y del Medicare pagados por el empleador sobre ciertas propinas del empleado), en inglés. Filing 1040ez form Otros impuestos. Filing 1040ez form   Después de haber restado los créditos tributarios, determine si tiene que pagar impuestos adicionales. Filing 1040ez form Este capítulo no explica dichos impuestos adicionales. Filing 1040ez form Esa información aparece en otros capítulos de esta publicación y en las instrucciones de los formularios. Filing 1040ez form Consulte la tabla siguiente para ver otros impuestos que tal vez necesite sumar al impuesto sobre los ingresos. Filing 1040ez form OTROS IMPUESTOS Para información sobre: Vea el   capítulo: Impuestos adicionales sobre planes de jubilación y arreglos IRA calificados 10, 17 Impuestos sobre el empleo de empleados domésticos 32 Recuperación de un crédito para estudios 35 Impuesto del Seguro Social y Medicare sobre el salario 5 Impuesto del Seguro Social y Medicare sobre las propinas 6 Impuestos no retenidos del Seguro Social y Medicare sobre propinas 6   Usted quizás podría verse obligado a pagar el impuesto mínimo alternativo (el cual se explica más adelante en este capítulo). Filing 1040ez form   Existen impuestos adicionales que no se explican en esta publicación. Filing 1040ez form Éstos abarcan lo siguiente: Impuesto sobre el trabajo por cuenta propia. Filing 1040ez form Tiene que calcular este impuesto si cualquiera de las dos condiciones siguientes le corresponde (o a su cónyuge, si usted presenta una declaración conjunta). Filing 1040ez form Tiene ganancias netas provenientes del trabajo por cuenta propia de $400 o más, salvo ingresos de un empleado de una iglesia. Filing 1040ez form El término “ganancias netas provenientes del trabajo por cuenta propia” puede incluir determinada remuneración que no recibió como empleado y otras cantidades detalladas en el Formulario 1099-MISC, Miscellaneous Income (Ingresos misceláneos), en inglés. Filing 1040ez form Si recibió el Formulario 1099-MISC, vea las Instructions for Recipient (Instrucciones para el destinatario), al dorso del mismo. Filing 1040ez form Asimismo, vea las instrucciones del Anexo SE del Formulario 1040, Self-Employment Tax (Impuesto sobre el trabajo por cuenta propia) y la Publicación 334, Tax Guide for Small Business (Guía tributaria para pequeños negocios), ambas en inglés. Filing 1040ez form Recibió ingresos de $108. Filing 1040ez form 28 o más como empleado de una iglesia. Filing 1040ez form Impuesto Adicional del Medicare. Filing 1040ez form Comenzando en el año 2013, usted quizás podría estar sujeto a un Impuesto Adicional del Medicare de 0. Filing 1040ez form 9%, que se le aplica a los salarios sujetos al impuesto Medicare, la remuneración recibida conforme a la Railroad Retirement Act (Ley de Jubilación Ferroviaria) y el ingreso sobre el trabajo por cuenta propia que esté sobre cierta cantidad según su estado civil para efectos de la declaración. Filing 1040ez form Si desea más información, vea las instrucciones para la línea 60 del Formulario 1040 y las Instrucciones para el Formulario 8959, ambas disponibles en inglés. Filing 1040ez form Impuesto sobre los ingresos netos de inversión (NIIT, por sus siglas en inglés). Filing 1040ez form Comenzando en el año 2013, usted quizás podría estar sujeto al impuesto sobre los ingresos netos de inversión (NIIT, por sus siglas en inglés). Filing 1040ez form El NIIT es un impuesto de 3. Filing 1040ez form 8% sobre la cantidad menor entre el ingreso neto de inversión o la cantidad en exceso de su ingreso bruto ajustado modificado sobre una cantidad límite. Filing 1040ez form Si desea más información, vea las instrucciones para la línea 60 del Formulario 1040 y las Instrucciones para el Formulario 8960, ambas disponibles en inglés. Filing 1040ez form Impuestos sobre recuperaciones. Filing 1040ez form Podría verse obligado a pagar estos impuestos si antes ha reclamado un crédito por inversiones, crédito de vivienda para personas de bajos recursos, crédito por mercados nuevos, crédito por vehículos enchufables con motor de dirección eléctrica que reúnen los requisitos, crédito por vehículo motorizado alternativo, crédito por instalaciones para proveer cuidado de niños provistas por el empleador, crédito por empleo de indios estadounidenses u otros créditos enumerados en las instrucciones para la línea 60 del Formulario 1040. Filing 1040ez form Para información adicional, vea las instrucciones para la línea 60 del Formulario 1040. Filing 1040ez form Impuesto sobre beneficios en exceso de la sección 72(m)(5). Filing 1040ez form Si usted es (o fue) propietario del 5% de un negocio y recibió una distribución superior a los beneficios que se le ofrecen conforme a la fórmula para planes de pensiones o de anualidades calificados, tal vez tenga que pagar este impuesto adicional. Filing 1040ez form Vea Tax on Excess Benefits (Impuesto sobre beneficios en exceso), en el capítulo 4 de la Publicación 560, Retirement Plans for Small Business (Planes de jubilación para pequeños negocios), en inglés. Filing 1040ez form Impuesto del Seguro Social y Medicare sobre el seguro de vida colectivo a término fijo que no fue recaudado. Filing 1040ez form Si su antiguo empleador proveyó más de $50,000 en cobertura de seguro de vida colectivo a término fijo, usted tiene que pagar la parte correspondiente al empleado de los impuestos del Seguro Social y Medicare sobre esas primas. Filing 1040ez form La cantidad debe aparecer en el recuadro 12 del Formulario W-2 con los códigos M y N. Filing 1040ez form Impuestos sobre pagos de contrato blindado. Filing 1040ez form Este impuesto le corresponde si recibió un “pago de contrato blindado en exceso” ( “excess parachute payment” o EPP, por sus siglas en inglés) debido a un cambio de propietario o administración de la empresa. Filing 1040ez form La cantidad de este impuesto debe estar indicada en el recuadro 12 del Formulario W-2 con el código K. Filing 1040ez form Vea las instrucciones para la línea 60 del Formulario 1040. Filing 1040ez form Impuestos sobre distribuciones acumuladas de fideicomisos. Filing 1040ez form Esto le corresponde si es el beneficiario de un fideicomiso que haya acumulado ingresos, en vez de haberlos distribuido a intervalos regulares. Filing 1040ez form Vea el Formulario 4970, Tax on Accumulation Distribution of Trusts (Impuestos sobre distribuciones acumuladas de fideicomisos), y sus instrucciones, en inglés. Filing 1040ez form Impuestos adicionales sobre las cuentas HSA o MSA. Filing 1040ez form Puede que tenga que pagar impuestos adicionales si las cantidades que se han aportado a su cuenta de ahorros para la salud (HSA, por sus siglas en inglés) o su cuenta de ahorros para gastos médicos (MSA, por sus siglas en inglés) o las cantidades que se han distribuido de éstas no cumplen los requisitos correspondientes a dichas cuentas. Filing 1040ez form Vea la Publicación 969, Health Savings Accounts and Other Tax-Favored Health Plans (Cuentas de ahorros para la salud y otros planes para la salud con beneficios tributarios); el Formulario 8853, Archer MSAs and Long-Term Care Insurance Contracts (Cuentas Archer MSA de ahorros médicos y contratos del seguro de cuidado a largo plazo); Formulario 8889, Health Savings Accounts (HSAs) (Cuentas de ahorros médicos (HSA, por sus siglas en inglés)) y el Formulario 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts (Impuestos adicionales sobre planes calificados (incluidos los arreglos IRA) y otras cuentas con beneficios tributarios), todos en inglés. Filing 1040ez form Impuestos adicionales en cuentas Coverdell ESA para estudios. Filing 1040ez form Esto es aplicable si las cantidades que se han aportado a su cuenta Coverdell ESA para estudios o que se han distribuido de la misma no satisfacen los requisitos correspondientes a dichas cuentas. Filing 1040ez form Vea la Publicación 970, Tax Benefits for Education (Prestaciones tributarias para estudios) y el Formulario 5329, ambos en inglés. Filing 1040ez form Impuestos adicionales sobre programas de matrícula calificada. Filing 1040ez form Esto corresponde a cantidades distribuidas de programas de matrícula calificada generales pero que no cumplan los requisitos de dichas cuentas. Filing 1040ez form Vea la Publicación 970 y el Formulario 5329, ambos en inglés. Filing 1040ez form Impuestos sobre artículos de uso y consumo gravados sobre remuneraciones de acciones internas de una empresa expatriada. Filing 1040ez form Tal vez adeude un impuesto sobre artículos de uso y consumo del 15% sobre el valor de opciones de acciones no estatutarias y sobre otra remuneración determinada procedente de las acciones, de las cuales usted o un miembro de su familia es dueño, que es de una empresa expatriada o su grupo ampliado de filiales en las que usted fue ejecutivo, directivo o propietario de más del 10%. Filing 1040ez form Para información adicional, vea las instrucciones para la línea 60 del Formulario 1040. Filing 1040ez form Impuestos adicionales sobre ingresos recibidos de un plan de remuneración diferida no calificado que no reúna determinados requisitos adicionales. Filing 1040ez form Estos ingresos tienen que aparecer en el recuadro 12 del Formulario W-2, con el código Z o en el recuadro 15b del Formulario 1099-MISC. Filing 1040ez form Para información adicional, vea las instrucciones para la línea 60 del Formulario 1040. Filing 1040ez form Intereses sobre los impuestos adeudados sobre ingresos de pagos a plazo procedentes de la venta de ciertos terrenos residenciales y multipropiedades. Filing 1040ez form Para información adicional, vea las instrucciones para la línea 60 del Formulario 1040. Filing 1040ez form Intereses sobre los impuestos diferidos sobre ganancias de ciertas ventas a plazos con precio de venta superior a $150,000. Filing 1040ez form Para información adicional, vea las instrucciones para la línea 60 del Formulario 1040. Filing 1040ez form Devolución del crédito tributario para comprador de primera vivienda. Filing 1040ez form Si desea más información, vea el Formulario 5405, Repayment of the First-Time Homebuyer Credit (Devolución del crédito tributario para comprador de primera vivienda) y sus instrucciones, disponibles en inglés. Filing 1040ez form Además, vea las instrucciones para la línea 59b del Formulario 1040, en inglés. Filing 1040ez form Pagos. Filing 1040ez form   Después de calcular el impuesto total, calcule el total de los pagos que ya haya efectuado para el año. Filing 1040ez form Incluya los créditos que se tratan como pagos. Filing 1040ez form Este capítulo no explica dichos pagos ni créditos. Filing 1040ez form Esa información aparece en otros capítulos de esta publicación y en las instrucciones de los formularios. Filing 1040ez form Vea la siguiente tabla para saber qué cantidades se pueden incluir en el total de sus pagos. Filing 1040ez form PAGOS Para información sobre: Vea el   capítulo: Crédito tributario por hijos (adicional) 34 Crédito por ingreso del trabajo 36 Impuestos estimados pagados 4 Impuestos de Seguro Social o impuestos de la jubilación ferroviaria retenidos en exceso 37 Retención del impuesto federal sobre los ingresos 4 Crédito tributario por cobertura del seguro médico 37 Crédito por sociedad inversionista reglamentada 37 Impuesto pagado a través de prórroga 1   Otro crédito que se considera un pago es el crédito por concepto del impuesto federal sobre artículos de uso y consumo pagado sobre combustibles. Filing 1040ez form Este crédito es para personas que hagan uso no tributable de determinados combustibles, tales como diésel y keroseno. Filing 1040ez form Se declara en la línea 70 del Formulario 1040. Filing 1040ez form Vea el Formulario 4136, Credit for Federal Tax Paid on Fuels (Crédito por impuestos federales pagados sobre combustibles), en inglés. Filing 1040ez form Reembolso o saldo adeudado. Filing 1040ez form   Para saber si tiene derecho a recibir un reembolso o si tiene que efectuar algún pago, compare el total de los pagos con el total del impuesto. Filing 1040ez form Si tiene derecho a un reembolso, vea las instrucciones del formulario que presentará para saber cómo puede depositar dicho reembolso directamente en una o más de sus cuentas o para comprar bonos de ahorros de los Estados Unidos en vez de recibir un cheque en papel. Filing 1040ez form Impuesto Mínimo Alternativo (AMT) Esta sección explica brevemente el impuesto adicional que podría verse obligado a pagar. Filing 1040ez form La ley tributaria les da un trato especial a determinados tipos de ingresos y permite deducciones y créditos especiales para algunos tipos de gastos. Filing 1040ez form Los contribuyentes que se vean beneficiados por este trato particular podrían estar obligados a pagar al menos una cantidad mínima de impuestos mediante otro impuesto adicional denominado “impuesto mínimo alternativo” (AMT, por sus siglas en inglés). Filing 1040ez form Tal vez tenga que pagar el impuesto mínimo alternativo si sus ingresos tributables para fines tributarios normales, sumados a determinados ajustes y elementos de preferencia tributaria, superan una determinada cantidad. Filing 1040ez form Vea el Formulario 6251, Alternative Minimum Tax — Individuals (Impuesto mínimo alternativo — personas físicas), en inglés. Filing 1040ez form Ajustes y elementos de preferencia tributaria. Filing 1040ez form   Los ajustes más comunes y elementos de preferencia tributaria abarcan los siguientes casos: Inclusión de exenciones personales, Inclusión de la deducción estándar (si ésta se reclamó), Inclusión de deducciones detalladas por concepto de impuestos estatales y locales, determinados intereses, la mayor parte de las deducciones misceláneas y parte de los gastos médicos, Exclusión de todo reembolso de impuestos estatales y locales que se haya incluido en los ingresos brutos, Cambios en la depreciación acelerada de determinados bienes, La diferencia entre ganancias y pérdidas sobre la venta de bienes declarada para fines tributarios normales y del impuesto mínimo alternativo, Inclusión de determinados ingresos procedentes de opciones de compra de acciones con incentivo, Cambio en ciertas deducciones por pérdidas de actividades pasivas, Inclusión de algún valor de agotamiento que sea superior a la base ajustada de los bienes, Inclusión de una parte de la deducción por ciertos gastos de perforación intangibles e Inclusión de intereses exentos de impuestos sobre determinados bonos de una actividad privada. Filing 1040ez form Información adicional. Filing 1040ez form   Para más información acerca del impuesto mínimo alternativo, vea las Instrucciones para el Formulario 6251, en inglés. Filing 1040ez form Impuestos Calculados por el IRS Si presenta la declaración para el 15 de abril de 2014, puede pedir que el IRS le calcule los impuestos en el Formulario 1040EZ, el Formulario 1040A o el Formulario 1040. Filing 1040ez form Si el IRS le calcula los impuestos y usted pagó demasiado, recibirá un reembolso. Filing 1040ez form Si no pagó lo suficiente, recibirá una factura que indique el saldo adeudado. Filing 1040ez form Para no tener que pagar intereses o una multa por pagos morosos, tiene que pagar la factura dentro de 30 días a partir de la fecha de la factura o para la fecha de vencimiento para la presentación de la declaración, la que ocurra más tarde. Filing 1040ez form El IRS también le calcula el crédito para ancianos o personas incapacitadas además del crédito por ingreso del trabajo. Filing 1040ez form Cuándo el IRS no puede calcularle los impuestos. Filing 1040ez form   El IRS no puede calcularle los impuestos si se da alguna de las siguientes condiciones: Desea que el reembolso se deposite directamente en sus cuentas. Filing 1040ez form Desea que alguna parte del reembolso se aplique al impuesto estimado de 2014. Filing 1040ez form Recibió ingresos para el año de fuentes que no sean salarios, sueldos, propinas, intereses, dividendos, beneficios de Seguro Social sujetos a impuestos, compensación por desempleo, distribuciones de un arreglo IRA, pensiones y anualidades. Filing 1040ez form Su ingreso tributable es $100,000 o más. Filing 1040ez form Detalla las deducciones. Filing 1040ez form Presenta cualquiera de los siguientes formularios: Formulario 2555, Foreign Earned Income (Ingresos devengados en el extranjero), en inglés. Filing 1040ez form Formulario 2555-EZ, Foreign Earned Income Exclusion (Exclusión de ingresos devengados en el extranjero), en inglés. Filing 1040ez form Formulario 4137, Social Security and Medicare Tax on Unreported Tip Income (Impuestos del Seguro Social y Medicare sobre el ingreso de propinas no declaradas), en inglés. Filing 1040ez form Formulario 4970, Tax on Accumulation Distribution of Trusts (Impuesto sobre distribuciones acumuladas de un fideicomiso), en inglés. Filing 1040ez form Formulario 4972, Tax on Lump-Sum Distributions (Impuesto sobre distribuciones de sumas globales), en inglés. Filing 1040ez form Formulario 6198, At-Risk Limitations (Límites sobre el monto en riesgo), en inglés. Filing 1040ez form Formulario 6251, Alternative Minimum Tax—Individuals (Impuesto mínimo alternativo—personas físicas), en inglés. Filing 1040ez form Formulario 8606, Nondeductible IRAs (Arreglos IRA no deducibles), en inglés. Filing 1040ez form Formulario 8615, Tax for Certain Children Who Have Unearned Income (Impuesto para determinados hijos con ingresos no derivados del trabajo), en inglés. Filing 1040ez form Formulario 8814, Parents' Election To Report Child's Interest and Dividends (Decisión de los padres de declarar los intereses y dividendos del hijo), en inglés. Filing 1040ez form Formulario 8839, Qualified Adoption Expenses (Gastos de adopción calificados), en inglés. Filing 1040ez form Formulario 8853, Archer MSAs and Long-Term Care Insurance Contracts (Planes de ahorros para gastos médicos Archer y contratos de seguro para cuidados a largo plazo), en inglés. Filing 1040ez form Formulario 8889, Health Savings Accounts (HSAs) (Cuentas de ahorro para gastos médicos (HSA)), en inglés. Filing 1040ez form Formulario 8919, Uncollected Social Security and Medicare Tax on Wages (Impuestos sobre salarios sujetos al Seguro Social y al Medicare no recaudados), en inglés. Filing 1040ez form Cómo Presentar la Declaración Después de haber completado las líneas del formulario de impuestos que va a presentar, escriba su nombre y dirección. Filing 1040ez form En el espacio provisto, anote su número de Seguro Social. Filing 1040ez form Si es casado, escriba los números de Seguro Social de usted y su cónyuge aun si presenta una declaración por separado. Filing 1040ez form Firme y feche la declaración y escriba su(s) oficio(s). Filing 1040ez form Si presenta una declaración conjunta, usted y su cónyuge tienen que firmarla. Filing 1040ez form En el espacio provisto, anote un número telefónico con su código de área donde ubicarlo durante el día. Filing 1040ez form Esto agilizará la tramitación de su declaración si el IRS tiene una pregunta que puede ser resuelta por teléfono. Filing 1040ez form Si presenta una declaración conjunta de impuestos, anote el número de teléfono donde usted o su cónyuge pueden ser localizados durante el día. Filing 1040ez form Si desea autorizar al IRS para que hable sobre su declaración de impuestos del año 2013 con su amigo, con un miembro de su familia o con cualquier persona que usted elija, marque el recuadro “ Yes ” (Sí) en el área titulada “ Third Party Designee ” (Designación de un tercero) de su declaración de impuestos. Filing 1040ez form También, escriba el nombre del designado, número de teléfono y cualesquier 5 dígitos que el designado elija como su número de identificación personal (PIN, por sus siglas en inglés). Filing 1040ez form Si marca el recuadro “ Yes ” (Sí), usted y su cónyuge, si presentan una declaración conjunta, autoriza(n) a los empleados del IRS a llamar al designado para que éste conteste toda pregunta que surja durante el trámite de su declaración de impuestos. Filing 1040ez form Complete y adjunte a su declaración en papel cualesquier anexo y formulario solicitado en las líneas que usted completó. Filing 1040ez form Adjunte una copia de cada uno de los Formularios W-2 a la declaración en papel. Filing 1040ez form Además, adjunte a su declaración en papel todo Formulario 1099-R recibido que indique retención de impuestos en el recuadro 4. Filing 1040ez form Envíe la declaración al Internal Revenue Service Center (Centro de Servicio del IRS) que corresponda al área donde vive. Filing 1040ez form Una lista de direcciones de Centros de Servicio se halla al final de la publicación y en las instrucciones de su declaración de impuestos. Filing 1040ez form Datos a Incluir en el Formulario 1040EZ Lea las líneas 1 a 8b y llene las líneas que le correspondan. Filing 1040ez form No llene las líneas 9 a 12. Filing 1040ez form Si presenta una declaración conjunta, utilice el espacio a la izquierda de la línea 6 para indicar por separado los ingresos tributables suyos y los de su cónyuge. Filing 1040ez form Pagos. Filing 1040ez form   Anote en la línea 7 todo impuesto federal sobre los ingresos que se le haya retenido. Filing 1040ez form El impuesto federal sobre los ingresos retenido aparece en el recuadro 2 del Formulario W-2 o en el recuadro 4 del Formulario 1099. Filing 1040ez form Crédito por ingreso del trabajo. Filing 1040ez form   Si puede reclamar este crédito, según se explica en el capítulo 36 , el IRS se lo puede calcular. Filing 1040ez form Escriba “EIC” en el espacio a la izquierda de la línea 8a. Filing 1040ez form Anote en la línea 8b la paga no tributable por combate que desee incluir en los ingresos derivados del trabajo. Filing 1040ez form   Si su crédito de cualquier año posterior a 1996 fue reducido o denegado por el IRS, quizás tenga que presentar junto con la declaración el Formulario 8862(SP), Información Para Reclamar el Crédito Por Ingreso del Trabajo Después de Haber Sido Denegado (o el Formulario 8862, Information To Claim Earned Income Credit After Disallowance, en inglés). Filing 1040ez form Para detalles adicionales, vea las Instrucciones para el Formulario 1040EZ, en inglés. Filing 1040ez form Datos a Incluir en el Formulario 1040A Lea las líneas 1 a 27 y llene las líneas que le correspondan. Filing 1040ez form Si presenta una declaración conjunta, utilice el espacio a la izquierda de la línea 27 para indicar por separado los ingresos tributables suyos y los de su cónyuge. Filing 1040ez form No llene la línea 28. Filing 1040ez form Llene las líneas 29 a 33 y 36 a 40 si le corresponden. Filing 1040ez form Sin embargo, no llene las líneas 30 ni 38a si desea que el IRS le calcule los créditos indicados en dichas líneas. Filing 1040ez form Además, escriba toda información adicional que le corresponda en el espacio a la izquierda de la línea 41. Filing 1040ez form No llene las líneas 34, 35 ni 42 a la 46. Filing 1040ez form Pagos. Filing 1040ez form   Anote todo impuesto federal retenido sobre los ingresos que se indique en el recuadro 2 del Formulario W-2 o en el recuadro 4 del Formulario 1099, en la línea 36. Filing 1040ez form Anote en la línea 37 todo pago de impuesto estimado que haya efectuado. Filing 1040ez form Crédito por gastos del cuidado de menores y dependientes. Filing 1040ez form   Si puede reclamar este crédito, según se explica en el capítulo 32 , complete el Formulario 2441, Child and Dependent Care Expenses (Gastos del cuidado de menores y dependientes), en inglés, y adjúntelo a su declaración. Filing 1040ez form Anote la cantidad del crédito en la línea 29. Filing 1040ez form El IRS no le calculará este crédito. Filing 1040ez form Crédito para ancianos o personas incapacitadas. Filing 1040ez form   Si puede reclamar este crédito, según se explica en el capítulo 33 , el IRS le calculará este crédito. Filing 1040ez form Escriba “ CFE ” en el espacio a la izquierda de la línea 30 y adjunte el Anexo R del Formulario 1040, Credit for the Elderly or the Disabled (Crédito para ancianos o personas incapacitadas), en inglés, a su declaración de impuestos en papel. Filing 1040ez form En el Anexo R, marque el recuadro de la Parte I correspondiente a su estado civil para efectos de la declaración y edad. Filing 1040ez form Complete la Parte II y las líneas 11 y 13 de la Parte III, si le corresponden. Filing 1040ez form Crédito por ingreso del trabajo. Filing 1040ez form   Si puede reclamar este crédito, según se explica en el capítulo 36 , el IRS se lo calculará. Filing 1040ez form Anote “EIC” a la izquierda del espacio de la línea 38a. Filing 1040ez form Anote en la línea 38b la paga no tributable por combate que desee incluir en los ingresos derivados del trabajo. Filing 1040ez form   Si tiene un hijo que le da derecho a este crédito, tiene que llenar el Anexo EIC (Formulario 1040 ó 1040A), Earned Income Credit (Crédito por ingreso del trabajo), en inglés, y adjuntarlo a su declaración en papel. Filing 1040ez form Si no provee el número de Seguro Social de su hijo en la línea 2 del Anexo EIC, el crédito será reducido o denegado a menos que el hijo haya nacido y fallecido en el año 2013. Filing 1040ez form   Si su crédito de cualquier año posterior a 1996 fue reducido o denegado por el IRS, tal vez tenga que presentar junto con la declaración el Formulario 8862(SP) (o el Formulario 8862, en inglés). Filing 1040ez form Para detalles adicionales, vea las Instrucciones para el Formulario 1040A. Filing 1040ez form Datos a Incluir en el Formulario 1040 Lea las líneas 1 a 43 y llene las líneas que le correspondan. Filing 1040ez form No llene la línea 44. Filing 1040ez form Si presenta una declaración conjunta, utilice el espacio bajo las palabras “ Adjusted Gross Income ” (Ingresos brutos ajustados), en la primera página de la declaración para indicar por separado los ingresos tributables suyos y los de su cónyuge. Filing 1040ez form Lea las líneas 45 a la 71. Filing 1040ez form Llene las líneas que le correspondan, pero no llene las líneas 54, 61 ni 72. Filing 1040ez form Además, no complete la línea 55 ni las líneas 73 a 77. Filing 1040ez form No llene el recuadro “ c ” de la línea 53 si completa el Anexo R del Formulario 1040A o 1040, ni la línea 64a si desea que el IRS le calcule los créditos indicados en dichas líneas. Filing 1040ez form Pagos. Filing 1040ez form   Anote todo impuesto federal retenido sobre los ingresos que se indique en el recuadro 2 del Formulario W-2 o en el recuadro 4 del Formulario 1099, en la línea 62. Filing 1040ez form Anote en la línea 63 todo pago de impuesto estimado que haya efectuado. Filing 1040ez form Crédito por gastos del cuidado de menores y dependientes. Filing 1040ez form   Si puede reclamar este crédito, según se explica en el capítulo 32 , complete el Formulario 2441, en inglés, y adjúntelo a su declaración en papel. Filing 1040ez form Anote la cantidad del crédito en la línea 48. Filing 1040ez form El IRS no le calculará este crédito. Filing 1040ez form Crédito para ancianos o personas incapacitadas. Filing 1040ez form   Si puede reclamar este crédito, según se explica en el capítulo 33 , el IRS puede calcularle este crédito. Filing 1040ez form Escriba “CFE” al lado de la línea 53 y marque el recuadro “ c ” y adjunte el Anexo R del Formulario 1040A o 1040 a su declaración en papel. Filing 1040ez form En el Anexo R del Formulario 1040A o 1040, marque el recuadro de la Parte I correspondiente a su estado civil para efectos de la declaración y edad. Filing 1040ez form Complete la Parte II y las líneas 11 y 13 de la Parte III, si le corresponden. Filing 1040ez form Crédito por ingreso del trabajo. Filing 1040ez form   Si puede reclamar este crédito, según se explica en el capítulo 36 , el IRS se lo calculará. Filing 1040ez form Anote “EIC” en la línea de puntos al lado de la línea 64a del Formulario 1040. Filing 1040ez form Anote en la línea 64b la paga no tributable por combate que desee incluir en los ingresos derivados del trabajo. Filing 1040ez form   Si tiene un hijo que le dé derecho a este crédito, tiene que llenar el Anexo EIC, Earned Income Credit (Crédito por ingreso del trabajo), en inglés, y adjuntarlo a su declaración en papel. Filing 1040ez form Si no provee el número de Seguro Social de su hijo en la línea 2 del Anexo EIC (Formulario 1040 ó 1040A), el crédito será reducido o denegado a menos que su hijo haya nacido y fallecido en el año 2013. Filing 1040ez form   Si su crédito de cualquier año posterior a 1996 fue reducido o denegado por el IRS, tal vez tenga que presentar junto con la declaración el Formulario 8862(SP), (o el Formulario 8862, en inglés). Filing 1040ez form Para detalles adicionales, vea las Instrucciones para el Formulario 1040, en inglés. Filing 1040ez form Prev  Up  Next   Home   More Online Publications
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IRS Reminds Taxpayers about Direct Deposit and Split Refunds

 

IR-2014-37, March 27, 2014

WASHINGTON — For 57 million Americans, the refund check is no longer in the mail; it’s already in the bank.

So far this year, the Internal Revenue Service has issued direct-deposit refunds valued at more than $170 billion, as a growing number of taxpayers are choosing the speed and convenience of direct deposit, rather than receiving a paper check. So far this year, almost 85 percent of all refunds have been directly deposited into taxpayers’ bank accounts.

Taxpayers can have their refunds directly deposited when they e-file or by including their account information on their paper tax return..

Banks, mutual funds, brokerage firms and credit unions are all eligible to receive direct deposits. Before making this choice, however, taxpayers should make sure the financial institution accepts direct deposits for the type of account chosen.

Taxpayers also have the option and flexibility of splitting refund deposits among two or three different accounts or financial institutions. For instance, a refund could be split between a savings account, a checking account or an Individual Retirement Arrangement (IRA). Taxpayers can split their refunds when they e-file or by filing Form 8888, Direct Deposit of Refund to More Than One Account.

A taxpayer's refund should only be deposited directly into accounts that are in the taxpayer's own name; the taxpayer's spouse's name or both if it's a joint account.

Those who choose direct deposit get their refunds at least a week sooner, and direct deposit eliminates the chance of a lost, stolen or undeliverable refund.

[The filing season statistics table follows.]

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2014 FILING SEASON STATISTICS

Cumulative statistics comparing 3/22/13 and 3/21/14

Individual Income Tax Returns:

2013

2014

% Change

Total Receipts

82,413,000

82,852,000

0.5

Total Processed

77,102,000

81,149,000

5.2

 

 

 

 

E-filing Receipts:

 

 

 

TOTAL           

74,420,000

75,610,000

1.6

Tax Professionals

44,524,000

43,953,000

-1.3

Self-prepared

29,896,000

31,657,000

5.9

 

 

 

 

Web Usage:

 

 

 

Visits to IRS.gov

234,237,695

209,074,699

-10.7

 

 

 

 

Total Refunds:

 

 

 

Number

66,429,000

67,383,000

1.4

Amount

$187.788

Billion

$193.543

Billion

3.1

Average refund

$2,827

$2,872

1.6

 

 

 

 

Direct Deposit Refunds:

 

 

 

Number

56,985,000

57,101,000

0.2

Amount

$170.127

Billion

$170.187

Billion

0.04

Average refund

$2,985

$2,980

-0.2

 

Page Last Reviewed or Updated: 27-Mar-2014

The Filing 1040ez Form

Filing 1040ez form Publication 537 - Main Content Table of Contents What Is an Installment Sale?Special rule. Filing 1040ez form 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. Filing 1040ez form Several assets. Filing 1040ez form Special situations. Filing 1040ez form Schedule D (Form 1040). Filing 1040ez form Form 4797. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form The installment sales method cannot be used for the following. Filing 1040ez form Sale of inventory. Filing 1040ez form   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. Filing 1040ez form See Sale of a Business under Other Rules, later. Filing 1040ez form Dealer sales. Filing 1040ez form   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. Filing 1040ez form This rule also applies to real property held for sale to customers in the ordinary course of a trade or business. Filing 1040ez form However, the rule does not apply to an installment sale of property used or produced in farming. Filing 1040ez form Special rule. Filing 1040ez form   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. Filing 1040ez form For more information, see section 453(l). Filing 1040ez form Stock or securities. Filing 1040ez form   You cannot use the installment method to report gain from the sale of stock or securities traded on an established securities market. Filing 1040ez form You must report the entire gain on the sale in the year in which the trade date falls. Filing 1040ez form Installment obligation. Filing 1040ez form   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. Filing 1040ez form 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. Filing 1040ez form See Electing Out of the Installment Method under Other Rules, later, for information on recognizing the entire gain in the year of sale. Filing 1040ez form Sale at a loss. Filing 1040ez form   If your sale results in a loss, you cannot use the installment method. Filing 1040ez form If the loss is on an installment sale of business or investment property, you can deduct it only in the tax year of sale. Filing 1040ez form Unstated interest. Filing 1040ez form   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. Filing 1040ez form See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. Filing 1040ez form 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. Filing 1040ez form Each payment on an installment sale usually consists of the following three parts. Filing 1040ez form Interest income. Filing 1040ez form Return of your adjusted basis in the property. Filing 1040ez form Gain on the sale. Filing 1040ez form 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. Filing 1040ez form You do not include in income the part that is the return of your basis in the property. Filing 1040ez form Basis is the amount of your investment in the property for installment sale purposes. Filing 1040ez form Interest Income You must report interest as ordinary income. Filing 1040ez form Interest is generally not included in a down payment. Filing 1040ez form 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. Filing 1040ez form Interest provided in the agreement is called stated interest. Filing 1040ez form If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. Filing 1040ez form See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. Filing 1040ez form 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. Filing 1040ez form A tax-free return of your adjusted basis in the property, and Your gain (referred to as installment sale income on Form 6252). Filing 1040ez form Figuring adjusted basis for installment sale purposes. Filing 1040ez form   You can use Worksheet A to figure your adjusted basis in the property for installment sale purposes. Filing 1040ez form 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. Filing 1040ez form Worksheet A. Filing 1040ez form Figuring Adjusted Basis and Gross Profit Percentage 1. Filing 1040ez form Enter the selling price for the property   2. Filing 1040ez form Enter your adjusted basis for the property     3. Filing 1040ez form Enter your selling expenses     4. Filing 1040ez form Enter any depreciation recapture     5. Filing 1040ez form Add lines 2, 3, and 4. Filing 1040ez form  This is your adjusted basis for installment sale purposes   6. Filing 1040ez form Subtract line 5 from line 1. Filing 1040ez form If zero or less, enter -0-. Filing 1040ez form  This is your gross profit     If the amount entered on line 6 is zero, stop here. Filing 1040ez form You cannot use the installment method. Filing 1040ez form   7. Filing 1040ez form Enter the contract price for the property   8. Filing 1040ez form Divide line 6 by line 7. Filing 1040ez form This is your gross profit percentage   Selling price. Filing 1040ez form   The selling price is the total cost of the property to the buyer and includes any of the following. Filing 1040ez form Any money you are to receive. Filing 1040ez form 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). Filing 1040ez form 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). Filing 1040ez form Any of your selling expenses the buyer pays. Filing 1040ez form   Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. Filing 1040ez form Adjusted basis for installment sale purposes. Filing 1040ez form   Your adjusted basis is the total of the following three items. Filing 1040ez form Adjusted basis. Filing 1040ez form Selling expenses. Filing 1040ez form Depreciation recapture. Filing 1040ez form Adjusted basis. Filing 1040ez form   Basis is your investment in the property for installment sale purposes. Filing 1040ez form The way you figure basis depends on how you acquire the property. Filing 1040ez form The basis of property you buy is generally its cost. Filing 1040ez form The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. Filing 1040ez form   While you own property, various events may change your original basis. Filing 1040ez form Some events, such as adding rooms or making permanent improvements, increase basis. Filing 1040ez form Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. Filing 1040ez form The result is adjusted basis. Filing 1040ez form   For more information on how to figure basis and adjusted basis, see Publication 551. Filing 1040ez form 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. Filing 1040ez form Selling expenses. Filing 1040ez form   Selling expenses relate to the sale of the property. Filing 1040ez form They include commissions, attorney fees, and any other expenses paid on the sale. Filing 1040ez form Selling expenses are added to the basis of the sold property. Filing 1040ez form Depreciation recapture. Filing 1040ez form   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. Filing 1040ez form See Depreciation Recapture Income under Other Rules, later. Filing 1040ez form Gross profit. Filing 1040ez form   Gross profit is the total gain you report on the installment method. Filing 1040ez form   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. Filing 1040ez form If the property you sold was your home, subtract from the gross profit any gain you can exclude. Filing 1040ez form See Sale of Your Home , later, under Reporting Installment Sale Income. Filing 1040ez form Contract price. Filing 1040ez form   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. Filing 1040ez form Gross profit percentage. Filing 1040ez form   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. Filing 1040ez form This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. Filing 1040ez form   The gross profit percentage generally remains the same for each payment you receive. Filing 1040ez form However, see the Example under Selling Price Reduced, later, for a situation where the gross profit percentage changes. Filing 1040ez form Example. Filing 1040ez form You sell property at a contract price of $6,000 and your gross profit is $1,500. Filing 1040ez form Your gross profit percentage is 25% ($1,500 ÷ $6,000). Filing 1040ez form 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. Filing 1040ez form The remainder (balance) of each payment is the tax-free return of your adjusted basis. Filing 1040ez form Amount to report as installment sale income. Filing 1040ez form   Multiply the payments you receive each year (less interest) by the gross profit percentage. Filing 1040ez form The result is your installment sale income for the tax year. Filing 1040ez form In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. Filing 1040ez form A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. Filing 1040ez form For a detailed discussion, see Payments Received or Considered Received under Other Rules, later. Filing 1040ez form Selling Price Reduced If the selling price is reduced at a later date, the gross profit on the sale also will change. Filing 1040ez form You then must refigure the gross profit percentage for the remaining payments. Filing 1040ez form Refigure your gross profit using Worksheet B. Filing 1040ez form You will spread any remaining gain over future installments. Filing 1040ez form Worksheet B. Filing 1040ez form New Gross Profit Percentage — Selling Price Reduced 1. Filing 1040ez form Enter the reduced selling  price for the property   2. Filing 1040ez form Enter your adjusted  basis for the  property     3. Filing 1040ez form Enter your selling  expenses     4. Filing 1040ez form Enter any depreciation  recapture     5. Filing 1040ez form Add lines 2, 3, and 4. Filing 1040ez form   6. Filing 1040ez form Subtract line 5 from line 1. Filing 1040ez form  This is your adjusted  gross profit   7. Filing 1040ez form Enter any installment sale  income reported in  prior year(s)   8. Filing 1040ez form Subtract line 7 from line 6   9. Filing 1040ez form Future installments   10. Filing 1040ez form Divide line 8 by line 9. Filing 1040ez form  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. Filing 1040ez form Example. Filing 1040ez form In 2011, you sold land with a basis of $40,000 for $100,000. Filing 1040ez form Your gross profit was $60,000. Filing 1040ez form You received a $20,000 down payment and the buyer's note for $80,000. Filing 1040ez form The note provides for four annual payments of $20,000 each, plus 8% interest, beginning in 2012. Filing 1040ez form Your gross profit percentage is 60%. Filing 1040ez form You reported a gain of $12,000 on each payment received in 2011 and 2012. Filing 1040ez form 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. Filing 1040ez form The new gross profit percentage, 46. Filing 1040ez form 67%, is figured on Example—Worksheet B. Filing 1040ez form You will report a gain of $7,000 (46. Filing 1040ez form 67% of $15,000) on each of the $15,000 installments due in 2013, 2014, and 2015. Filing 1040ez form Example — Worksheet B. Filing 1040ez form New Gross Profit Percentage — Selling Price Reduced 1. Filing 1040ez form Enter the reduced selling  price for the property 85,000 2. Filing 1040ez form Enter your adjusted  basis for the  property 40,000   3. Filing 1040ez form Enter your selling  expenses -0-   4. Filing 1040ez form Enter any depreciation  recapture -0-   5. Filing 1040ez form Add lines 2, 3, and 4. Filing 1040ez form 40,000 6. Filing 1040ez form Subtract line 5 from line 1. Filing 1040ez form  This is your adjusted  gross profit 45,000 7. Filing 1040ez form Enter any installment sale  income reported in  prior year(s) 24,000 8. Filing 1040ez form Subtract line 7 from line 6 21,000 9. Filing 1040ez form Future installments 45,000 10. Filing 1040ez form Divide line 8 by line 9. Filing 1040ez form  This is your new gross profit percentage* 46. Filing 1040ez form 67% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Filing 1040ez form 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. Filing 1040ez form You also will have to report the installment sale income on Schedule D (Form 1040), Capital Gains and Losses, or Form 4797, or both. Filing 1040ez form See Schedule D (Form 1040) and Form 4797 , later. Filing 1040ez form If the property was your main home, you may be able to exclude part or all of the gain. Filing 1040ez form See Sale of Your Home , later. Filing 1040ez form 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. Filing 1040ez form Attach it to your tax return for each year. Filing 1040ez form Form 6252 will help you determine the gross profit, contract price, gross profit percentage, and installment sale income. Filing 1040ez form Which parts to complete. Filing 1040ez form   Which part to complete depends on whether you are filing the form for the year of sale or a later year. Filing 1040ez form Year of sale. Filing 1040ez form   Complete lines 1 through 4, Part I, and Part II. Filing 1040ez form If you sold property to a related party during the year, also complete Part III. Filing 1040ez form Later years. Filing 1040ez form   Complete lines 1 through 4 and Part II for any year in which you receive a payment from an installment sale. Filing 1040ez form   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. Filing 1040ez form (After December 31, 1986, the installment method is not available for the sale of marketable securities. Filing 1040ez form ) Complete lines 1 through 4 and Part II for any year in which you receive a payment from the sale. Filing 1040ez form Complete Part III unless you received the final payment during the tax year. Filing 1040ez form   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. Filing 1040ez form 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. Filing 1040ez form Complete Part III for the 2 years after the year of sale unless you received the final payment during the tax year. Filing 1040ez form 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). Filing 1040ez form 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. Filing 1040ez form Your gain is long-term if you owned the property for more than 1 year when you sold it. Filing 1040ez form 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. Filing 1040ez form All or part of any gain from the disposition of the property may be ordinary gain from depreciation recapture. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form ” Sale of Your Home If you sell your home, you may be able to exclude all or part of the gain on the sale. Filing 1040ez form See Publication 523 for information about excluding the gain. Filing 1040ez form If the sale is an installment sale, any gain you exclude is not included in gross profit when figuring your gross profit percentage. Filing 1040ez form Seller-financed mortgage. Filing 1040ez form   If you finance the sale of your home to an individual, both you and the buyer may have to follow special reporting procedures. Filing 1040ez form   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. Filing 1040ez form   When deducting the mortgage interest, the buyer must write your name, address, and SSN on line 11 of Schedule A (Form 1040), Itemized Deductions. Filing 1040ez form   If either person fails to include the other person's SSN, a $50 penalty will be assessed. Filing 1040ez form Other Rules The rules discussed in this part of the publication apply only in certain circumstances or to certain types of property. Filing 1040ez form The following topics are discussed. Filing 1040ez form Electing out of the installment method. Filing 1040ez form Payments received or considered received. Filing 1040ez form Escrow account. Filing 1040ez form Depreciation recapture income. Filing 1040ez form Sale to a related person. Filing 1040ez form Like-kind exchange. Filing 1040ez form Contingent payment sale. Filing 1040ez form Single sale of several assets. Filing 1040ez form Sale of a business. Filing 1040ez form Unstated interest and original issue discount. Filing 1040ez form Disposition of an installment obligation. Filing 1040ez form Repossession. Filing 1040ez form Interest on deferred tax. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form Notes, mortgages, and land contracts are examples of obligations that are included at FMV. Filing 1040ez form You must figure the FMV of the buyer's installment obligation, whether or not you would actually be able to sell it. Filing 1040ez form 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). Filing 1040ez form Example. Filing 1040ez form You sold a parcel of land for $50,000. Filing 1040ez form 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. Filing 1040ez form The buyer gave you a note for $40,000. Filing 1040ez form The note had an FMV of $40,000. Filing 1040ez form You paid a commission of 6%, or $3,000, to a broker for negotiating the sale. Filing 1040ez form The land cost $25,000, and you owned it for more than one year. Filing 1040ez form You decide to elect out of the installment method and report the entire gain in the year of sale. Filing 1040ez form Gain realized:     Selling price $50,000 Minus: Property's adj. Filing 1040ez form 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. Filing 1040ez form basis $25,000     Commission 3,000 28,000 Gain recognized $22,000 The recognized gain of $22,000 is long-term capital gain. Filing 1040ez form 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. Filing 1040ez form The interest on the note is ordinary income and is reported as interest income each year. Filing 1040ez form How to elect out. Filing 1040ez form   To make this election, do not report your sale on Form 6252. Filing 1040ez form Instead, report it on Form 8949, Sales and Other Dispositions of Capital Assets, Form 4797, or both. Filing 1040ez form When to elect out. Filing 1040ez form   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. Filing 1040ez form Automatic six-month extension. Filing 1040ez form   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). Filing 1040ez form Write “Filed pursuant to section 301. Filing 1040ez form 9100-2” at the top of the amended return and file it where the original return was filed. Filing 1040ez form Revoking the election. Filing 1040ez form   Once made, the election can be revoked only with IRS approval. Filing 1040ez form A revocation is retroactive. Filing 1040ez form You will not be allowed to revoke the election if either of the following applies. Filing 1040ez form One of the purposes is to avoid federal income tax. Filing 1040ez form The tax year in which any payment was received has closed. Filing 1040ez form 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. Filing 1040ez form In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form Include these expenses in the selling and contract prices when figuring the gross profit percentage. Filing 1040ez form 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. Filing 1040ez form Mortgage not more than basis. Filing 1040ez form   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. Filing 1040ez form It is considered a recovery of your basis. Filing 1040ez form The contract price is the selling price minus the mortgage. Filing 1040ez form Example. Filing 1040ez form You sell property with an adjusted basis of $19,000. Filing 1040ez form You have selling expenses of $1,000. Filing 1040ez form 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). Filing 1040ez form The selling price is $25,000 ($15,000 + $10,000). Filing 1040ez form Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). Filing 1040ez form The contract price is $10,000 ($25,000 − $15,000 mortgage). Filing 1040ez form Your gross profit percentage is 50% ($5,000 ÷ $10,000). Filing 1040ez form You report half of each $2,000 payment received as gain from the sale. Filing 1040ez form You also report all interest you receive as ordinary income. Filing 1040ez form Mortgage more than basis. Filing 1040ez form   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. Filing 1040ez form The part of the mortgage greater than your basis is treated as a payment received in the year of sale. Filing 1040ez form   To figure the contract price, subtract the mortgage from the selling price. Filing 1040ez form This is the total amount (other than interest) you will receive directly from the buyer. Filing 1040ez form Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). Filing 1040ez form The contract price is then the same as your gross profit from the sale. Filing 1040ez form    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. Filing 1040ez form Example. Filing 1040ez form The selling price for your property is $9,000. Filing 1040ez form The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. Filing 1040ez form Your adjusted basis in the property is $4,400. Filing 1040ez form You have selling expenses of $600, for a total installment sale basis of $5,000. Filing 1040ez form The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). Filing 1040ez form This amount is included in the contract price and treated as a payment received in the year of sale. Filing 1040ez form 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%. Filing 1040ez form Report 100% of each payment (less interest) as gain from the sale. Filing 1040ez form 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. Filing 1040ez form Mortgage Canceled If the buyer of your property is the person who holds the mortgage on it, your debt is canceled, not assumed. Filing 1040ez form You are considered to receive a payment equal to the outstanding canceled debt. Filing 1040ez form Example. Filing 1040ez form Mary Jones loaned you $45,000 in 2009 in exchange for a note and a mortgage in a tract of land you owned. Filing 1040ez form On April 4, 2013, she bought the land for $70,000. Filing 1040ez form At that time, $30,000 of her loan to you was outstanding. Filing 1040ez form 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. Filing 1040ez form She did not assume an existing mortgage. Filing 1040ez form She canceled the $30,000 debt you owed her. Filing 1040ez form You are considered to have received a $30,000 payment at the time of the sale. Filing 1040ez form 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. Filing 1040ez form If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. Filing 1040ez form Compare the debt to your installment sale basis in the property being sold. Filing 1040ez form If the debt is less than your installment sale basis, none of it is treated as a payment. Filing 1040ez form If it is more, only the difference is treated as a payment. Filing 1040ez form 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. Filing 1040ez form These rules are the same as the rules discussed earlier under Buyer Assumes Mortgage . Filing 1040ez form However, they apply only to the following types of debt the buyer assumes. Filing 1040ez form Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. Filing 1040ez form Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. Filing 1040ez form 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. Filing 1040ez form The value of the assumed debt is then considered a payment to you in the year of sale. Filing 1040ez form 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. Filing 1040ez form However, see Like-Kind Exchange , later. Filing 1040ez form Generally, the amount of the payment is the property's FMV on the date you receive it. Filing 1040ez form Exception. Filing 1040ez form   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. Filing 1040ez form See Unstated Interest and Original Issue Discount (OID) , later. Filing 1040ez form Debt not payable on demand. Filing 1040ez form   Any evidence of debt you receive from the buyer not payable on demand is not considered a payment. Filing 1040ez form This is true even if the debt is guaranteed by a third party, including a government agency. Filing 1040ez form Fair market value (FMV). Filing 1040ez form   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. Filing 1040ez form Third-party note. Filing 1040ez form   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. Filing 1040ez form 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. Filing 1040ez form The excess of the note's face value over its FMV is interest. Filing 1040ez form Exclude this interest in determining the selling price of the property. Filing 1040ez form However, see Exception under Property Used As a Payment, earlier. Filing 1040ez form Example. Filing 1040ez form You sold real estate in an installment sale. Filing 1040ez form As part of the down payment, the buyer assigned to you a $50,000, 8% interest third-party note. Filing 1040ez form The FMV of the third-party note at the time of the sale was $30,000. Filing 1040ez form This amount, not $50,000, is a payment to you in the year of sale. Filing 1040ez form 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. Filing 1040ez form The remaining 40% is interest taxed as ordinary income. Filing 1040ez form Bond. Filing 1040ez form   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. Filing 1040ez form For more information on the amount you should treat as a payment, see Exception under Property Used As a Payment, earlier. Filing 1040ez form    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. Filing 1040ez form However, see Exception under Property Used As a Payment, earlier. Filing 1040ez form Buyer's note. Filing 1040ez form   The buyer's note (unless payable on demand) is not considered payment on the sale. Filing 1040ez form However, its full face value is included when figuring the selling price and the contract price. Filing 1040ez form Payments you receive on the note are used to figure your gain in the year received. Filing 1040ez form 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. Filing 1040ez form This is known as the pledge rule, and it applies if the selling price of the property is over $150,000. Filing 1040ez form It does not apply to the following dispositions. Filing 1040ez form Sales of property used or produced in farming. Filing 1040ez form Sales of personal-use property. Filing 1040ez form Qualifying sales of time-shares and residential lots. Filing 1040ez form The net debt proceeds are the gross debt minus the direct expenses of getting the debt. Filing 1040ez form The amount treated as a payment is considered received on the later of the following dates. Filing 1040ez form The date the debt becomes secured. Filing 1040ez form The date you receive the debt proceeds. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form Limit. Filing 1040ez form   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. Filing 1040ez form The total contract price on the installment sale. Filing 1040ez form Any payments received on the installment obligation before the date the net debt proceeds are treated as a payment. Filing 1040ez form Installment payments. Filing 1040ez form   The pledge rule accelerates the reporting of the installment obligation payments. Filing 1040ez form 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. Filing 1040ez form Exception. Filing 1040ez form   The pledge rule does not apply to pledges made after December 17, 1987, to refinance a debt under the following circumstances. Filing 1040ez form The debt was outstanding on December 17, 1987. Filing 1040ez form The debt was secured by that installment sale obligation on that date and at all times thereafter until the refinancing occurred. Filing 1040ez form   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. Filing 1040ez form   This exception applies only to refinancing that does not exceed the principal of the original debt immediately before the refinancing. Filing 1040ez form Any excess is treated as a payment on the installment obligation. Filing 1040ez form 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. Filing 1040ez form These sales cannot be reported on the installment method. Filing 1040ez form The buyer's obligation is paid in full when the balance of the purchase price is deposited into the escrow account. Filing 1040ez form When an escrow account is established, you no longer rely on the buyer for the rest of the payments, but on the escrow arrangement. Filing 1040ez form Example. Filing 1040ez form You sell property for $100,000. Filing 1040ez form 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. Filing 1040ez form You cannot report the sale on the installment method because the full purchase price is considered received in the year of sale. Filing 1040ez form You report the entire gain in the year of sale. Filing 1040ez form Escrow established in a later year. Filing 1040ez form   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. Filing 1040ez form Substantial restriction. Filing 1040ez form   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. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. Filing 1040ez form Report the recapture income in Part II of Form 4797 as ordinary income in the year of sale. Filing 1040ez form The recapture income is also included in Part I of Form 6252. Filing 1040ez form However, the gain equal to the recapture income is reported in full in the year of the sale. Filing 1040ez form Only the gain greater than the recapture income is reported on the installment method. Filing 1040ez form For more information on depreciation recapture, see chapter 3 in Publication 544. Filing 1040ez form 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. Filing 1040ez form Determining gross profit is discussed under General Rules , earlier. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form These rules are explained under Sale of Depreciable Property and under Sale and Later Disposition , later. Filing 1040ez form Sale of Depreciable Property If you sell depreciable property to certain related persons, you generally cannot report the sale using the installment method. Filing 1040ez form Instead, all payments to be received are considered received in the year of sale. Filing 1040ez form However, see Exception , below. Filing 1040ez form Depreciable property for this rule is any property the purchaser can depreciate. Filing 1040ez form Payments to be received include the total of all noncontingent payments and the FMV of any payments contingent as to amount. Filing 1040ez form In the case of contingent payments for which the FMV cannot be reasonably determined, your basis in the property is recovered proportionately. Filing 1040ez form The purchaser cannot increase the basis of the property acquired in the sale before the seller includes a like amount in income. Filing 1040ez form Exception. Filing 1040ez form   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. Filing 1040ez form 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. Filing 1040ez form Related person. Filing 1040ez form   Related persons include the following. Filing 1040ez form A person and all controlled entities with respect to that person. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form Two or more partnerships in which the same person owns, directly or indirectly, more than 50% of the capital interests or the profits interests. Filing 1040ez form   For information about which entities are controlled entities, see section 1239(c). Filing 1040ez form 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. Filing 1040ez form The related person makes the second disposition before making all payments on the first disposition. Filing 1040ez form The related person disposes of the property within 2 years of the first disposition. Filing 1040ez form This rule does not apply if the property involved is marketable securities. Filing 1040ez form 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. Filing 1040ez form See Exception , later. Filing 1040ez form Related person. Filing 1040ez form   Related persons include the following. Filing 1040ez form Members of a family, including only brothers and sisters (either whole or half), husband and wife, ancestors, and lineal descendants. Filing 1040ez form A partnership or estate and a partner or beneficiary. Filing 1040ez form A trust (other than a section 401(a) employees trust) and a beneficiary. Filing 1040ez form A trust and an owner of the trust. Filing 1040ez form Two corporations that are members of the same controlled group as defined in section 267(f). Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Filing 1040ez form Any two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form An executor and a beneficiary of an estate unless the sale is in satisfaction of a pecuniary bequest. Filing 1040ez form Example 1. Filing 1040ez form 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. Filing 1040ez form His installment sale basis for the farm land was $250,000 and the property was not subject to any outstanding liens or mortgages. Filing 1040ez form His gross profit percentage is 50% (gross profit of $250,000 ÷ contract price of $500,000). Filing 1040ez form He received $100,000 in 2012 and included $50,000 in income for that year ($100,000 × 0. Filing 1040ez form 50). Filing 1040ez form Bob made no improvements to the property and sold it to Alfalfa Inc. Filing 1040ez form , in 2013 for $600,000 after making the payment for that year. Filing 1040ez form The amount realized from the second disposition is $600,000. Filing 1040ez form 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 % × . Filing 1040ez form 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). Filing 1040ez form Example 2. Filing 1040ez form Assume the facts are the same as Example 1 except that Bob sells the property for only $400,000. Filing 1040ez form 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 % × . Filing 1040ez form 50 Installment sale income for 2013 $150,000     Harvey receives a $100,000 payment in 2014 and another in 2015. Filing 1040ez form 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. Filing 1040ez form In 2016, he receives the final $100,000 payment. Filing 1040ez form 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 % × . Filing 1040ez form 50 Installment sale income for 2016 $ 50,000 Exception. Filing 1040ez form   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. Filing 1040ez form 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. Filing 1040ez form   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. Filing 1040ez form However, the exception does not apply if the resale terms permit significant deferral of recognition of gain from the first sale. Filing 1040ez form   In addition, any sale or exchange of stock to the issuing corporation is not treated as a first disposition. Filing 1040ez form An involuntary conversion is not treated as a second disposition if the first disposition occurred before the threat of conversion. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form These trades are known as like-kind exchanges. Filing 1040ez form The property you receive in a like-kind exchange is treated as if it were a continuation of the property you gave up. Filing 1040ez form You do not have to report any part of your gain if you receive only like-kind property. Filing 1040ez form 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. Filing 1040ez form For more information on like-kind exchanges, see Like-Kind Exchanges in chapter 1 of Publication 544. Filing 1040ez form Installment payments. Filing 1040ez form   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. Filing 1040ez form The contract price is reduced by the FMV of the like-kind property received in the trade. Filing 1040ez form The gross profit is reduced by any gain on the trade that can be postponed. Filing 1040ez form Like-kind property received in the trade is not considered payment on the installment obligation. Filing 1040ez form Example. Filing 1040ez form 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. Filing 1040ez form He also receives an installment note for $800,000 in the trade. Filing 1040ez form 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. Filing 1040ez form George's selling price is $1,000,000 ($800,000 installment note + $200,000 FMV of like-kind property received). Filing 1040ez form His gross profit is $600,000 ($1,000,000 − $400,000 installment sale basis). Filing 1040ez form The contract price is $800,000 ($1,000,000 − $200,000). Filing 1040ez form The gross profit percentage is 75% ($600,000 ÷ $800,000). Filing 1040ez form He reports no gain in 2013 because the like-kind property he receives is not treated as a payment for figuring gain. Filing 1040ez form 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). Filing 1040ez form Deferred exchanges. Filing 1040ez form   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. Filing 1040ez form Under this type of exchange, the person receiving your property may be required to place funds in an escrow account or trust. Filing 1040ez form 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. Filing 1040ez form See Regulations section 1. Filing 1040ez form 1031(k)-1(j)(2) for these rules. Filing 1040ez form 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. Filing 1040ez form This happens, for example, if you sell your business and the selling price includes a percentage of its profits in future years. Filing 1040ez form 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. Filing 1040ez form For rules on using the installment method for a contingent payment sale, see Regulations section 15a. Filing 1040ez form 453-1(c). Filing 1040ez form 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. Filing 1040ez form You also have to allocate part of the selling price to each asset. Filing 1040ez form If you sell assets that constitute a trade or business, see Sale of a Business , later. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form This becomes the net FMV. Filing 1040ez form A sale of separate and unrelated assets of the same type under a single contract is reported as one transaction for the installment method. Filing 1040ez form However, if an asset is sold at a loss, its disposition cannot be reported on the installment method. Filing 1040ez form It must be reported separately. Filing 1040ez form The remaining assets sold at a gain are reported together. Filing 1040ez form Example. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form Your installment sale basis for each parcel was $15,000. Filing 1040ez form Your net gain was $85,000 ($130,000 − $45,000). Filing 1040ez form You report the gain on the installment method. Filing 1040ez form The sales contract did not allocate the selling price or the cash payment received in the year of sale among the individual parcels. Filing 1040ez form The FMV of parcels A, B, and C were $60,000, $60,000, and $10,000, respectively. Filing 1040ez form The installment sale basis for parcel C was more than its FMV, so it was sold at a loss and must be treated separately. Filing 1040ez form You must allocate the total selling price and the amounts received in the year of sale between parcel C and the remaining parcels. Filing 1040ez form Of the total $130,000 selling price, you must allocate $120,000 to parcels A and B together and $10,000 to parcel C. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form You report this loss of $5,000 ($10,000 selling price − $15,000 installment sale basis) in the year of sale. Filing 1040ez form However, if parcel C was held for personal use, the loss is not deductible. Filing 1040ez form 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). Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form Assets sold at a loss. Filing 1040ez form Real and personal property eligible for the installment method. Filing 1040ez form Real and personal property ineligible for the installment method, including: Inventory, Dealer property, and Stocks and securities. Filing 1040ez form Inventory. Filing 1040ez form   The sale of inventories of personal property cannot be reported on the installment method. Filing 1040ez form All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. Filing 1040ez form   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. Filing 1040ez form If you do not, each payment must be allocated between the inventory and the other assets sold. Filing 1040ez form   Report the amount you receive (or will receive) on the sale of inventory items as ordinary business income. Filing 1040ez form Use your basis in the inventory to figure the cost of goods sold. Filing 1040ez form Deduct the part of the selling expenses allocated to inventory as an ordinary business expense. Filing 1040ez form Residual method. Filing 1040ez form   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. Filing 1040ez form This method determines gain or loss from the transfer of each asset and the buyer's basis in the assets. Filing 1040ez form   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. Filing 1040ez form 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). Filing 1040ez form   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. Filing 1040ez form   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). Filing 1040ez form The consideration remaining after this reduction must be allocated among the various business assets in a certain order. Filing 1040ez form   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. Filing 1040ez form Certificates of deposit, U. Filing 1040ez form S. Filing 1040ez form Government securities, foreign currency, and actively traded personal property, including stock and securities. Filing 1040ez form Accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. Filing 1040ez form However, see Regulations section 1. Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form All other assets except section 197 intangibles. Filing 1040ez form Section 197 intangibles except goodwill and going concern value. Filing 1040ez form Goodwill and going concern value (whether or not they qualify as section 197 intangibles). Filing 1040ez form   If an asset described in (1) through (6) is includible in more than one category, include it in the lower number category. Filing 1040ez form For example, if an asset is described in both (4) and (6), include it in (4). Filing 1040ez form Agreement. Filing 1040ez form   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. Filing 1040ez form This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Filing 1040ez form Reporting requirement. Filing 1040ez form   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. Filing 1040ez form Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. Filing 1040ez form The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Filing 1040ez form 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. Filing 1040ez form The sale of a partnership interest is treated as the sale of a single capital asset. Filing 1040ez form The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary income. Filing 1040ez form (The term “unrealized receivables” includes depreciation recapture income, discussed earlier. Filing 1040ez form ) The gain allocated to the unrealized receivables and the inventory cannot be reported under the installment method. Filing 1040ez form The gain allocated to the other assets can be reported under the installment method. Filing 1040ez form For more information on the treatment of unrealized receivables and inventory, see Publication 541. Filing 1040ez form Example — Sale of a Business On June 4, 2013, you sold the machine shop you had operated since 2005. Filing 1040ez form You received a $100,000 down payment and the buyer's note for $120,000. Filing 1040ez form The note payments are $15,000 each, plus 10% interest, due every July 1 and January 1, beginning in 2014. Filing 1040ez form The total selling price is $220,000. Filing 1040ez form Your selling expenses are $11,000. Filing 1040ez form The selling expenses are divided among all the assets sold, including inventory. Filing 1040ez form Your selling expense for each asset is 5% of the asset's selling price ($11,000 selling expense ÷ $220,000 total selling price). Filing 1040ez form The FMV, adjusted basis, and depreciation claimed on each asset sold are as follows:     Depre- ciation Adj. Filing 1040ez form 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). Filing 1040ez form The remaining $18,500 ($220,000 - $201,500) is allocated to your section 197 intangible, goodwill. Filing 1040ez form 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. Filing 1040ez form   Sale  Price Sale   Exp. Filing 1040ez form Adj. Filing 1040ez form   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. Filing 1040ez form A 71,000 3,550 63,800 3,650 Mch. Filing 1040ez form 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. Filing 1040ez form There is no depreciation recapture income because the building was depreciated using the straight line method. Filing 1040ez form 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. Filing 1040ez form Figure depreciation recapture in Part III of Form 4797. Filing 1040ez form The total depreciation recapture income reported in Part II of Form 4797 is $5,209. Filing 1040ez form 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). Filing 1040ez form These gains are reported in full in the year of sale and are not included in the installment sale computation. Filing 1040ez form Of the $220,000 total selling price, the $10,000 for inventory assets cannot be reported using the installment method. Filing 1040ez form 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. Filing 1040ez form The selling price equals the contract price for the installment sale ($108,500). Filing 1040ez form The assets included in the installment sale, their selling price, and their installment sale bases are shown in the following chart. Filing 1040ez form   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). Filing 1040ez form The gross profit percentage for each asset is figured as follows: Percentage Land— $24,900 ÷ $108,500 22. Filing 1040ez form 95 Building— $9,600 ÷ $108,500 8. Filing 1040ez form 85 Goodwill— $17,575 ÷ $108,500 16. Filing 1040ez form 20 Total 48. Filing 1040ez form 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. Filing 1040ez form The selling price for the installment sale is $108,500. Filing 1040ez form This is 49. Filing 1040ez form 3% of the total selling price of $220,000 ($108,500 ÷ $220,000). Filing 1040ez form The selling price of assets not reported on the installment method is $111,500. Filing 1040ez form This is 50. Filing 1040ez form 7% ($111,500 ÷ $220,000) of the total selling price. Filing 1040ez form Multiply principal payments by 49. Filing 1040ez form 3% to determine the part of the payment for the installment sale. Filing 1040ez form The balance, 50. Filing 1040ez form 7%, is for the part reported in the year of the sale. Filing 1040ez form The gain on the sale of the inventory, machines, and truck is reported in full in the year of sale. Filing 1040ez form When you receive principal payments in later years, no part of the payment for the sale of these assets is included in gross income. Filing 1040ez form Only the part for the installment sale (49. Filing 1040ez form 3%) is used in the installment sale computation. Filing 1040ez form The only payment received in 2013 is the down payment of $100,000. Filing 1040ez form The part of the payment for the installment sale is $49,300 ($100,000 × 49. Filing 1040ez form 3%). Filing 1040ez form This amount is used in the installment sale computation. Filing 1040ez form Installment income for 2013. Filing 1040ez form   Your installment income for each asset is the gross profit percentage for that asset times $49,300, the installment income received in 2013. Filing 1040ez form Income Land—22. Filing 1040ez form 95% of $49,300 $11,314 Building—8. Filing 1040ez form 85% of $49,300 4,363 Goodwill—16. Filing 1040ez form 2% of $49,300 7,987 Total installment income for 2013 $23,664 Installment income after 2013. Filing 1040ez form   You figure installment income for years after 2013 by applying the same gross profit percentages to 49. Filing 1040ez form 3% of the total payments you receive on the buyer's note during the year. Filing 1040ez form 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. Filing 1040ez form Interest provided in the contract is called stated interest. Filing 1040ez form 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. Filing 1040ez form If section 483 applies to the contract, this interest is called unstated interest. Filing 1040ez form If section 1274 applies to the contract, this interest is called original issue discount (OID). Filing 1040ez form An installment sale contract does not provide for adequate stated interest if the stated interest rate is lower than the test rate (defined later). Filing 1040ez form Treatment of unstated interest and OID. Filing 1040ez form   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. Filing 1040ez form As a result, the buyer cannot deduct the unstated interest. Filing 1040ez form The seller must report the unstated interest as income. Filing 1040ez form   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. Filing 1040ez form   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. Filing 1040ez form Rules for the seller. Filing 1040ez form   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. Filing 1040ez form If either section applies, you must reduce the stated selling price of the property and increase your interest income by this unstated interest. Filing 1040ez form   Include the unstated interest in income based on your regular method of accounting. Filing 1040ez form Include OID in income over the term of the contract. Filing 1040ez form   The OID includible in income each year is based on the constant yield method described in section 1272. Filing 1040ez form (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. Filing 1040ez form )   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. Filing 1040ez form Reduce the selling price by any stated principal treated as interest to determine the gain. Filing 1040ez form   Report unstated interest or OID on your tax return, in addition to stated interest. Filing 1040ez form Rules for the buyer. Filing 1040ez form   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. Filing 1040ez form These rules do not apply to personal-use property (for example, property not used in a trade or business). Filing 1040ez form Adequate stated interest. Filing 1040ez form   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. Filing 1040ez form The present value of a payment is determined based on the test rate of interest, defined next. Filing 1040ez form (If section 483 applies to the contract, payments due within six months after the sale are taken into account at face value. Filing 1040ez form ) 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. Filing 1040ez form Test rate of interest. Filing 1040ez form   The test rate of interest for a contract is the 3-month rate. Filing 1040ez form The 3-month rate is the lower of the following applicable federal rates (AFRs). Filing 1040ez form 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. Filing 1040ez form 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. Filing 1040ez form Applicable federal rate (AFR). Filing 1040ez form   The AFR depends on the month the binding