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Filing 2012 Taxes In 2013

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Filing 2012 Taxes In 2013

Filing 2012 taxes in 2013 33. Filing 2012 taxes in 2013   Crédito para Ancianos o Personas Incapacitadas Table of Contents Introduction Useful Items - You may want to see: ¿Reúne los Requisitos del Crédito?Persona que Reúne los Requisitos Límites sobre los Ingresos Cómo Reclamar el CréditoEl Crédito Calculado por el IRS El Crédito Calculado por Usted Mismo Introduction Si reúne los requisitos, tal vez pueda reducir los impuestos que adeuda tomando el crédito para ancianos o personas incapacitadas, el cual se calcula en el Anexo R (Formulario 1040A o Formulario 1040). Filing 2012 taxes in 2013 Este capítulo trata lo siguiente: Quién reúne los requisitos para reclamar el crédito para ancianos o personas incapacitadas. Filing 2012 taxes in 2013 Cómo reclamar el crédito. Filing 2012 taxes in 2013 Tal vez pueda tomar el crédito para ancianos o personas incapacitadas si: Tiene 65 años de edad o más al final del año 2013 o Se jubiló por incapacidad total y permanente y recibe ingresos por incapacidad sujetos a impuestos. Filing 2012 taxes in 2013 Useful Items - You may want to see: Publicación 524 Credit for the Elderly or the Disabled (Crédito para ancianos o personas incapacitadas), en inglés 554 Tax Guide for Seniors (Guía tributaria para personas de la tercera edad), en inglés Formulario (e Instrucciones) Anexo R (Formulario 1040A o 1040) Credit for the Elderly or the Disabled (Crédito para ancianos o personas incapacitadas), en inglés ¿Reúne los Requisitos del Crédito? Puede reclamar el crédito para ancianos o personas incapacitadas si le corresponden ambas situaciones: Usted es una persona que reúne los requisitos. Filing 2012 taxes in 2013 Sus ingresos no sobrepasan determinados límites. Filing 2012 taxes in 2013 Puede utilizar la Figura 33-A y la Tabla 33-1 como guía para ver si tiene derecho al crédito. Filing 2012 taxes in 2013 Primero, utilice la Figura 33-A para saber si reúne los requisitos. Filing 2012 taxes in 2013 En tal caso, pase a la Tabla 33-1 para asegurarse que sus ingresos no superen los límites correspondientes al crédito. Filing 2012 taxes in 2013 Puede reclamar el crédito sólo si presenta el Formulario 1040 o el Formulario 1040A. Filing 2012 taxes in 2013 No puede reclamar el crédito si presenta el Formulario 1040EZ. Filing 2012 taxes in 2013 Persona que Reúne los Requisitos Usted reúne los requisitos de este crédito si es ciudadano estadounidense o extranjero residente y cualquiera de las siguientes situaciones le corresponden: Tenía 65 años de edad o más al final del año 2013. Filing 2012 taxes in 2013 Tenía menos de 65 años de edad al final del año 2013 y se cumplen las tres condiciones siguientes: Se jubiló por incapacidad total y permanente (se explica más adelante). Filing 2012 taxes in 2013 Recibió ingresos sujetos a impuestos por incapacidad durante 2013. Filing 2012 taxes in 2013 En el día 1 de enero de 2013, no había alcanzado la edad de jubilación obligatoria (se define más adelante bajo Ingresos por incapacidad ). Filing 2012 taxes in 2013 65 años de edad. Filing 2012 taxes in 2013   Se considera que tiene 65 años el día antes de cumplir los 65 años. Filing 2012 taxes in 2013 Por lo tanto, si nació el 1 de enero de 1949, se considera que tiene 65 años de edad al final de 2013. Filing 2012 taxes in 2013 Ciudadano o Extranjero Residente de los Estados Unidos Para reclamar el crédito, tiene que ser ciudadano o extranjero residente de los Estados Unidos (o ser tratado como extranjero residente). Filing 2012 taxes in 2013 Normalmente, no puede reclamar el crédito si fue extranjero no residente en algún momento durante el año tributario. Filing 2012 taxes in 2013 Excepciones. Filing 2012 taxes in 2013   Tal vez pueda tomar el crédito si es extranjero no residente casado con un ciudadano o extranjero residente de los EE. Filing 2012 taxes in 2013 UU. Filing 2012 taxes in 2013 al final del año tributario, y usted y su cónyuge optan por tratarlo a usted como extranjero residente de los Estados Unidos. Filing 2012 taxes in 2013 En tal caso, se gravan impuestos sobre los ingresos que usted y su cónyuge reciban de cualquier parte del mundo. Filing 2012 taxes in 2013 Si era extranjero no residente al comenzar el año y residente extranjero al final del año, y estaba casado con un ciudadano o extranjero residente de los EE. Filing 2012 taxes in 2013 UU. Filing 2012 taxes in 2013 al final del año, tal vez pueda optar por ser considerado extranjero residente de los EE. Filing 2012 taxes in 2013 UU. Filing 2012 taxes in 2013 durante todo el año. Filing 2012 taxes in 2013 En ese caso, quizás se le permita reclamar el crédito. Filing 2012 taxes in 2013 Para más información sobre estas opciones, vea el capítulo 1 de la Publicación 519, U. Filing 2012 taxes in 2013 S. Filing 2012 taxes in 2013 Tax Guide for Aliens (Guía tributaria sobre los impuestos estadounidenses para extranjeros), en inglés. Filing 2012 taxes in 2013 Personas Casadas Normalmente, si está casado al final del año tributario, usted y su cónyuge tienen que presentar una declaración conjunta para reclamar el crédito. Filing 2012 taxes in 2013 No obstante, si usted y su cónyuge no vivieron en la misma vivienda en ningún momento durante el año tributario, pueden presentar una declaración conjunta o declaraciones separadas y aún reclamar el crédito. Filing 2012 taxes in 2013 Cabeza de familia. Filing 2012 taxes in 2013   Puede presentar la declaración como cabeza de familia y satisfacer las condiciones del crédito, aun si su cónyuge vivió con usted durante los primeros 6 meses del año, si cumple ciertos requisitos. Filing 2012 taxes in 2013 Vea Cabeza de Familia en el capítulo 2, para averiguar qué requisitos tiene que cumplir. Filing 2012 taxes in 2013 Personas Menores de 65 Años de Edad Si tiene menos de 65 años de edad al final del año 2013, puede reunir los requisitos del crédito sólo si está jubilado por incapacidad total y permanente (se explica a continuación) y ha recibido ingresos por incapacidad sujetos a impuestos (se explica más adelante, bajo el tema Ingresos por incapacidad ). Filing 2012 taxes in 2013 Se le considera jubilado por incapacidad total y permanente si: Estaba total y permanentemente incapacitado cuando se jubiló y Se jubiló por incapacidad antes del cierre del año tributario. Filing 2012 taxes in 2013 Aunque no se jubile oficialmente, puede que se le considere jubilado por incapacidad cuando haya dejado de trabajar debido a su incapacidad. Filing 2012 taxes in 2013 Si se jubiló por incapacidad antes de 1977 y no estaba total y permanentemente incapacitado en ese momento, puede cumplir los requisitos del crédito si estaba total y permanentemente incapacitado el 1 de enero de 1976 o el 1 de enero de 1977. Filing 2012 taxes in 2013 Total y permanentemente incapacitado. Filing 2012 taxes in 2013    Está total y permanentemente incapacitado si no puede dedicarse a ninguna actividad sustancial remunerada a causa de una condición física o mental. Filing 2012 taxes in 2013 Un médico calificado tiene que confirmar por escrito que dicha condición ha durado o puede durar 12 meses o más, o que dicha condición puede culminar en la muerte. Filing 2012 taxes in 2013 Vea Declaración del médico , más adelante. Filing 2012 taxes in 2013 Actividad sustancial remunerada. Filing 2012 taxes in 2013   Se define “actividad sustancial remunerada” como el desempeño de deberes importantes a lo largo de un período de tiempo razonable, mientras uno trabaje para recibir remuneración u obtener ganancias; o un trabajo generalmente realizado a cambio de remuneración o ganancias. Filing 2012 taxes in 2013 El mantener un empleo a tiempo completo (o un empleo a tiempo parcial a conveniencia de su empleador) en un ambiente laboral competitivo donde se paga por lo menos el salario mínimo se considera una prueba contundente de que puede dedicarse a una actividad sustancial remunerada. Filing 2012 taxes in 2013   Los trabajos realizados para cuidarse a sí mismo o cuidar su vivienda no se consideran actividades sustanciales remuneradas. Filing 2012 taxes in 2013 Tampoco se considera actividad sustancial remunerada: el trabajo no remunerado desempeñado en relación con los pasatiempos, la capacitación o terapia institucional, asistencia a una escuela, los clubes, programas sociales y otras actividades semejantes. Filing 2012 taxes in 2013 No obstante, realizar este tipo de trabajo puede demostrar que usted es capaz de dedicarse a una actividad sustancial remunerada. Filing 2012 taxes in 2013    El hecho de que no haya trabajado por algún tiempo no se considera una prueba concluyente de que no pueda dedicarse a una actividad sustancial remunerada. Filing 2012 taxes in 2013 Empleo en establecimientos protegidos. Filing 2012 taxes in 2013   Ciertos trabajos ofrecidos a personas con incapacidad física o mental en establecimientos que reúnen ciertos requisitos se consideran empleo protegido. Filing 2012 taxes in 2013 Dichos sitios se ubican en establecimientos protegidos, tales como talleres, hospitales e instituciones parecidas, programas laborales o educativos en el hogar y asilos patrocinados por el Departamento de Asuntos de Veteranos (VA, por sus siglas en inglés). Filing 2012 taxes in 2013   En comparación con el empleo comercial, la remuneración del empleo en establecimientos protegidos es más baja. Filing 2012 taxes in 2013 Por lo tanto, una persona no suele buscar empleo en establecimientos protegidos si puede encontrar otro empleo. Filing 2012 taxes in 2013 El hecho de que una persona haya aceptado un empleo en establecimientos protegidos no comprueba que la persona pueda dedicarse a una actividad sustancial remunerada. Filing 2012 taxes in 2013 Declaración del médico. Filing 2012 taxes in 2013   Si tiene menos de 65 años de edad, su médico tiene que certificar por escrito que usted estaba total y permanentemente incapacitado en la fecha en que se jubiló. Filing 2012 taxes in 2013 Puede utilizar la declaración en las Instrucciones del Anexo R (Fomulario 1040A o 1040). Filing 2012 taxes in 2013    Please click here for the text description of the image. Filing 2012 taxes in 2013 Figura 33−A. Filing 2012 taxes in 2013 ¿Es Usted una Persona que Reúne los Requisitos? Tabla 33-1. Filing 2012 taxes in 2013 Límites sobre los Ingresos SI su estado civil para efectos de la declaración es . Filing 2012 taxes in 2013 . Filing 2012 taxes in 2013 . Filing 2012 taxes in 2013 . Filing 2012 taxes in 2013 ENTONCES aun si reúne los requisitos (vea la Figura 33-A ), NO PUEDE reclamar el crédito si . Filing 2012 taxes in 2013 . Filing 2012 taxes in 2013 . Filing 2012 taxes in 2013 . Filing 2012 taxes in 2013 Tiene ingresos brutos ajustados (AGI, por sus siglas en inglés)* iguales o superiores a . Filing 2012 taxes in 2013 . Filing 2012 taxes in 2013 . Filing 2012 taxes in 2013 . Filing 2012 taxes in 2013 O el total de su Seguro Social no sujeto a impuestos además de otras pensiones, anualidades o ingreso por incapacidad no sujetos a impuestos es igual o superior a . Filing 2012 taxes in 2013 . Filing 2012 taxes in 2013 . Filing 2012 taxes in 2013 . Filing 2012 taxes in 2013 soltero, cabeza de familia o viudo que reúne los requisitos con hijo dependiente $17,500 $5,000 casado que presenta una declaración conjunta y sólo uno de los cónyuges reúne los requisitos de la Figura 33-A $20,000 $5,000 casado que presenta una declaración conjunta y ambos cónyuges reúnen los requisitos de la Figura 33-A $25,000 $7,500 casado que presenta una declaración por separado y usted y su cónyuge no vivieron en la misma vivienda en ningún momento del año 2013 $12,500 $3,750 *El AGI es la cantidad indicada en la línea 22 del Formulario 1040A o la línea 38 del Formulario 1040. Filing 2012 taxes in 2013   No tiene que presentar esta declaración escrita junto con el Formulario 1040 o Formulario 1040A, pero tiene que guardarla con su documentación. Filing 2012 taxes in 2013 Veteranos. Filing 2012 taxes in 2013   Si el Departamento de Asuntos de Veteranos (VA, por sus siglas en inglés) certifica que está total y permanentemente incapacitado, puede utilizar el Formulario 21-0172 del VA, Certification of Permanent and Total Disability (Certificación de incapacidad total y permanente), en inglés, en lugar de la declaración escrita de un médico que usted está obligado a conservar. Filing 2012 taxes in 2013 El Formulario 21-0172 del VA tiene que ser firmado por una persona autorizada por el VA. Filing 2012 taxes in 2013 Puede obtener este formulario de la oficina regional del VA de su área. Filing 2012 taxes in 2013 Declaración escrita de un médico obtenida en un año anterior. Filing 2012 taxes in 2013   Si obtuvo una declaración escrita de su médico en un año anterior y, por su condición continua de incapacidad, no pudo dedicarse a ninguna actividad sustancial remunerada durante 2013, quizás no necesite obtener otra declaración escrita de su médico para 2013. Filing 2012 taxes in 2013 Para leer una explicación detallada de las condiciones que tiene que cumplir, consulte la Parte II de las Instrucciones del Anexo R (Formulario 1040A o 1040). Filing 2012 taxes in 2013 Si satisface las condiciones obligatorias, marque el recuadro 2 de la Parte II del Anexo R (Formulario 1040A o 1040). Filing 2012 taxes in 2013   Si marcó el recuadro 4, 5 ó 6 de la Parte I del Anexo R (Formulario 1040A o 1040), anote en el espacio por encima del recuadro de la línea 2 de la Parte II el (los) primer(os) nombre(s) del (de los) cónyuge(s) para el (los) cual(es) está marcado dicho recuadro. Filing 2012 taxes in 2013 Ingresos por incapacidad. Filing 2012 taxes in 2013   Si tiene menos de 65 años de edad, tiene que tener también ingresos tributables de compensación por incapacidad para reunir los requisitos del crédito. Filing 2012 taxes in 2013 Los ingresos de compensación por incapacidad tienen que cumplir los siguientes requisitos: Se tienen que pagar conforme al seguro de accidente o médico, o el plan de pensiones de su empleador. Filing 2012 taxes in 2013 Se tienen que incluir en los ingresos como salario (o pagos en lugar de salario) durante el tiempo por el cual se ausentó del trabajo a raíz de una incapacidad total y permanente. Filing 2012 taxes in 2013 Pagos que no se consideran ingresos por incapacidad. Filing 2012 taxes in 2013   Todo pago que reciba de un plan que no ofrece una opción para la jubilación por incapacidad no se considera ingreso por incapacidad. Filing 2012 taxes in 2013 Todo pago global que reciba por vacaciones acumuladas al jubilarse por incapacidad se considera pago de salario en vez de ingreso por incapacidad. Filing 2012 taxes in 2013   Para propósitos del crédito para ancianos o personas incapacitadas, los ingresos por incapacidad no incluyen cantidades que usted reciba después de cumplir la edad obligatoria de jubilación. Filing 2012 taxes in 2013 La edad obligatoria de jubilación es la edad establecida por su empleador en la que usted habría estado obligado a jubilarse si no se hubiera quedado incapacitado. Filing 2012 taxes in 2013 Límites sobre los Ingresos Para determinar si puede reclamar el crédito, tiene que tener en cuenta dos límites sobre los ingresos. Filing 2012 taxes in 2013 El primer límite es la cantidad de ingresos brutos ajustados (AGI, por sus siglas en inglés). Filing 2012 taxes in 2013 El segundo límite es la cantidad de Seguro Social no sujeta a impuestos y otras pensiones, anualidades o compensación por incapacidad no sujetas a impuestos que haya recibido. Filing 2012 taxes in 2013 Se indican los límites en la Tabla 33-1. Filing 2012 taxes in 2013 Si tiene ingresos brutos ajustados y pensiones, anualidades o compensación por incapacidad no sujetos a impuestos inferiores a los límites de ingresos, quizás pueda reclamar el crédito. Filing 2012 taxes in 2013 Vea Cómo Reclamar el Crédito , más adelante. Filing 2012 taxes in 2013 Si tiene ingresos brutos ajustados o pensiones, anualidades o compensación por incapacidad no sujetos a impuestos iguales o superiores a los límites de ingresos, no puede reclamar el crédito. Filing 2012 taxes in 2013 Cómo Reclamar el Crédito Puede calcular el crédito usted mismo o el Servicio de Impuestos Internos (IRS, por sus siglas en inglés) se lo calculará. Filing 2012 taxes in 2013 El Crédito Calculado por el IRS Si opta por que el IRS le calcule el crédito, lea el tema presentado a continuación relacionado con el formulario que usted va a presentar (el Formulario 1040 o el Formulario 1040A). Filing 2012 taxes in 2013 Si desea que el IRS le calcule su impuesto, vea el capítulo 30 . Filing 2012 taxes in 2013 Formulario 1040. Filing 2012 taxes in 2013   Si desea que el IRS le calcule el crédito, vea Datos a Incluir en el Formulario 1040 bajo Impuestos Calculados por el IRS en el capítulo 30. Filing 2012 taxes in 2013 Formulario 1040A. Filing 2012 taxes in 2013   Si desea que el IRS le calcule el crédito, vea Datos a Incluir en el Formulario 1040A bajo Impuestos Calculados por el IRS en el capítulo 30. Filing 2012 taxes in 2013 El Crédito Calculado por Usted Mismo Si opta por calcular el crédito usted mismo, llene la primera página del Anexo R (Formulario 1040A o 1040). Filing 2012 taxes in 2013 Luego, llene la Parte III del Anexo R (Formulario 1040A o 1040). Filing 2012 taxes in 2013 Si presenta el Formulario 1040A, anote en la línea 30 de este formulario la cantidad proveniente de la línea 22 del Anexo R (Formulario 1040A o 1040). Filing 2012 taxes in 2013 Si presenta el Formulario 1040, anote en la línea 53 de este formulario la cantidad proveniente de la línea 22 del Anexo R (Formulario 1040A o 1040), marque el recuadro c y escriba “Sch R” en la línea al lado de dicho recuadro. Filing 2012 taxes in 2013 Para leer una explicación detallada sobre cómo llenar la Parte III del Anexo R, vea Figuring the Credit Yourself (Cómo calcular el crédito usted mismo), en la Publicación 524, en inglés. Filing 2012 taxes in 2013 Límite del crédito. Filing 2012 taxes in 2013   La cantidad del crédito que puede reclamar, por lo general, suele limitarse a la cantidad de impuestos que tiene que pagar. Filing 2012 taxes in 2013 Utilice la Credit Limit Worksheet (Hoja de trabajo para calcular el límite del crédito), en las Instrucciones del Anexo R (Formulario 1040A o Formulario 1040) para determinar si su crédito es limitado. Filing 2012 taxes in 2013 Prev  Up  Next   Home   More Online Publications
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The Filing 2012 Taxes In 2013

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