File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Free State Tax Filing Turbotax

2011 Tax Forms 1040aMy Pay GovFree Turbo Tax Filing1040ez Booklet2013 State Income Tax FormsHrblock Taxes1040 Us Individual Income Tax Return 2012Filing Taxes For Students2007 Free Tax Software1040 Ez FileHow To Efile 2011 TaxesAmmended Tax ReturnPrevious Year Tax ReturnHow To File Amended 2012 Tax Return1040ezFiling A 1040x1040x File OnlineFree Income Tax SoftwareTax Forms 2012Irs 2012 Tax ReturnAmendment To TaxesPrint Free 1040ez Tax FormDo I File My Taxes Free OnlineFree E File State Tax ReturnTax Form 1040xNeed To Amend 2010 Tax ReturnFree Tax Filing 2012Irs Income Tax Forms 2010Federal Income Tax Rates 2012Irs Tax Tables1040ez FillableFederal Income Tax Form 1040ezPrint Free 1040ez Tax FormIrs 1040ez Form 20122012 Tax How ComFile A 2010 Tax ReturnFree 1040ez FilingIrs Free File Fillable Forms2012 Tax Software DownloadsMontana State Tax Form 2011

Free State Tax Filing Turbotax

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

About Tax Exempt Bonds

Tax Exempt Bonds (TEB) is a division of the Governmental Entities (GE) division of the Tax Exempt and Governmental Entities Division (TE/GE) of the Internal Revenue Service. 

The mission of TEB is to administer Federal tax laws applicable to tax-advantaged bonds and to provide our customers with top quality service by applying tax laws with integrity and fairness.

Our Compliance Program Management (CPM) and Field Operation (FO) programs focus on providing participants in the tax-advantaged bond industry with quality service and assistance to members of the tax-advantaged bond community in understanding their tax responsibilities.  TEB develops tailored education programs focused on tax-advantaged bond industry segments; monitors non-compliance trends to design pro-active education and outreach products; and designs and implements compliance programs and projects that foster voluntary resolution of infractions of the tax rules related to tax-advantaged bonds.

Rebecca L. Harrigal, Director

Under the direction of Rebecca L. Harrigal, TEB works closely with the Office of Associate Chief Counsel (TE/GE), other offices within the Internal Revenue Service, other regulatory agencies, state and local government officials, and others in the tax-advantaged bond community to encourage and achieve the highest degree of voluntary compliance with Federal tax laws. 

Steven A. Chamberlin,  CPM Manager

The Compliance and Program Management Program (formerly, Outreach, Planning, and Review), under the direction of Steven A. Chamberlin, is primarily responsible for the development and coordination of the Tax Exempt Bond Voluntary Compliance/Closing Agreement Program (TEB VCAP) as well as the development of ongoing outreach programs designed to effectively identify, provide guidance to, and address the needs of the various customer groups that comprise the tax-advantaged bond community. The CPM program also develops project initiatives; updates the Internal Revenue Manual (IRM) and Revenue Procedures; prepares taxpayer and employee education and training materials; handles general information requests and referrals; coordinates with the Office of Associate Chief Counsel to provide legal guidance; and performs program planning and evaluation functions.

Allyson Belsome, FO Manager

The Field Operations Program, under the direction of Allyson Belsome,  is primarily responsible for identifying and correcting noncompliance with Federal tax laws applicable to tax-advantaged bonds.  The FO office conducts examinations, with fairness and the highest level of integrity, at the issuer level.   The goal of the program is to pro-actively assist issuers in their tax-advantaged bond compliance with the Federal tax laws. FO personnel throughout the country are active not only in conducting examinations but also in assisting with the delivery of outreach programs to the tax-advantaged bond community.  FO concentrates its efforts on the many emerging issues and focus areas in the tax-advantaged bond community.

Voluntary Compliance Agreement Program

To promote voluntary compliance with the provisions of the Internal Revenue Code relating to tax-advantaged bonds, TEB expanded its voluntary closing agreement program (TEB VCAP). In expanding TEB VCAP, the IRS seeks to encourage issuers, conduit borrowers and other parties to bond transactions to exercise due diligence and to attempt to correct any issuance and post-issuance infractions of the applicable sections of the Internal Revenue Code and regulations. This expansion reflects the IRS's continuing policy of taxing bondholders only as a last resort and it's desire to resolve tax-advantaged bond infractions with other parties to the bond transactions.

Voluntary closing agreement requests from anonymous parties as well as requests on behalf of multiple issuers and issues are encouraged if a sufficient description of the appropriate facts and circumstances leading to the infraction are provided to the Service.

We welcome your interest in the CPM function and participation in the TEB VCAP program. We also welcome your suggestions about how we can improve the program and encourage up-front voluntary compliance. If you have any questions about the TEB VCAP or wish to discuss or submit a closing agreement request, please contact Steven A. Chamberlin, Manager, Compliance and Program Management by phone at (636) 255-1290 or FAX your inquiry to (636) 255-1447. You may also mail closing agreement requests to CPM at the following address:

Internal Revenue Service
SE:T:GE:TEB:CPM
TEB Room 128
1122 Town & Country Commons
Chesterfield, MO 63017-8293

 

Outreach

It is TEB's highest priority to communicate effectively with the diverse membership of the tax-advantaged bond community. TEB looks forward to working in partnership with state and local government officials, regulatory agencies, national governmental, industry, and professional associations, as well as your state and local affiliates and members. Please let us know if you have any requests for technical assistance or if you would like a speaker or panelist for your meeting, workshop, seminar or conference. We would also welcome the opportunity to assign a staff person to coordinate with your task forces or subcommittees or provide information for your newsletters or similar publications. Please feel free to link any of our materials to your websites as well. We welcome your suggestions concerning the type of materials you would like to see on this website in the future and the type of newsletters or publications that would be useful to you.

We welcome your suggestions concerning how we can better serve our customers.

Page Last Reviewed or Updated: 22-Nov-2013

The Free State Tax Filing Turbotax

Free state tax filing turbotax Publication 600 - Main Contents Table of Contents Actual Expenses Optional Sales Tax Tables Instructions for the State and Local General Sales Tax Deduction WorksheetWhat if you lived in more than one state? What if you lived in more than one locality? What if your local general sales tax rate changed during 2006? What if you lived in more than one locality in the same state during 2006? Actual Expenses Generally, you can deduct the actual state and local general sales taxes (including compensating use taxes) you paid in 2006 if the tax rate was the same as the general sales tax rate. Free state tax filing turbotax However, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate. Free state tax filing turbotax If you paid sales tax on a motor vehicle at a rate higher than the general sales tax rate, you can deduct only the amount of tax that you would have paid at the general sales tax rate on that vehicle. Free state tax filing turbotax Motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles, trucks, vans, and off-road vehicles. Free state tax filing turbotax Also include any state and local general sales taxes paid for a leased motor vehicle. Free state tax filing turbotax Do not include sales taxes paid on items used in your trade or business. Free state tax filing turbotax To deduct your actual expenses, enter the amount on Schedule A, line 5, and enter “ST” on the dotted line to the left of the line 5 entry space. Free state tax filing turbotax You must keep your actual receipts showing general sales taxes paid to use this method. Free state tax filing turbotax Refund of general sales taxes. Free state tax filing turbotax   If you received a refund of state or local general sales taxes in 2006 for amounts paid in 2006, reduce your actual 2006 state and local general sales taxes by this amount. Free state tax filing turbotax If you received a refund of state or local general sales taxes in 2006 for prior year purchases, do not reduce your 2006 state and local general sales taxes by this amount. Free state tax filing turbotax But if you deducted your actual state and local general sales taxes in the earlier year and the deduction reduced your tax, you may have to include the refund in income on Form 1040, line 21. Free state tax filing turbotax See Recoveries in Pub. Free state tax filing turbotax 525 for details. Free state tax filing turbotax Optional Sales Tax Tables Instead of using your actual expenses, you can use the tables on pages 5 through 7 to figure your state and local general sales tax deduction. Free state tax filing turbotax You may also be able to add the state and local general sales taxes paid on certain specified items. Free state tax filing turbotax To figure your state and local general sales tax deduction using the tables, complete the worksheet below. Free state tax filing turbotax If your filing status is married filing separately, both you and your spouse elect to deduct sales taxes, and your spouse elects to use the optional sales tax tables, you also must use the tables to figure your state and local general sales tax deduction. Free state tax filing turbotax State and Local General Sales Tax Deduction Worksheet (See the instructions that begin on page 3. Free state tax filing turbotax ) Before you begin: See the instructions for line 1 on page 3 if: You lived in more than one state during 2006, or You had any nontaxable income in 2006. Free state tax filing turbotax   1. Free state tax filing turbotax Enter your state general sales taxes from the applicable table on page 5 or 6 (see page 3 of the instructions) 1. Free state tax filing turbotax $     Next. Free state tax filing turbotax If, for all of 2006, you lived only in Connecticut, the District of Columbia, Hawaii, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Rhode Island, Virginia, or West Virginia, skip lines 2 through 5, enter -0- on line 6, and go to line 7. Free state tax filing turbotax Otherwise, go to line 2       2. Free state tax filing turbotax Did you live in Alaska, Arizona, Arkansas (Texarkana only), California (Los Angeles County only), Colorado, Georgia, Illinois, Louisiana, New York State, or North Carolina in 2006?         No. Free state tax filing turbotax Enter -0-                   Yes. Free state tax filing turbotax Enter your local general sales taxes from the applicable table on page 7 (see page 3 of the instructions)     2. Free state tax filing turbotax $       3. Free state tax filing turbotax Did your locality impose a local general sales tax in 2006? Residents of California, Nevada, and Texarkana, Arkansas, see page 3 of the instructions             No. Free state tax filing turbotax Skip lines 3 through 5, enter -0- on line 6, and go to line 7             Yes. Free state tax filing turbotax Enter your local general sales tax rate, but omit the percentage sign. Free state tax filing turbotax For example, if your local general sales tax rate was 2. Free state tax filing turbotax 5%, enter 2. Free state tax filing turbotax 5. Free state tax filing turbotax If your local general sales tax rate changed or you lived in more than one locality in the same state during 2006, see page 3 of the instructions. Free state tax filing turbotax (If you do not know your local general sales tax rate, contact your local government. Free state tax filing turbotax ) 3. Free state tax filing turbotax . Free state tax filing turbotax       4. Free state tax filing turbotax Did you enter -0- on line 2 above?             No. Free state tax filing turbotax Skip lines 4 and 5 and go to line 6             Yes. Free state tax filing turbotax Enter your state general sales tax rate (shown in the table heading for your state), but omit the percentage sign. Free state tax filing turbotax For example, if your state general sales tax rate is 6%, enter 6. Free state tax filing turbotax 0 4. Free state tax filing turbotax . Free state tax filing turbotax       5. Free state tax filing turbotax Divide line 3 by line 4. Free state tax filing turbotax Enter the result as a decimal (rounded to at least three places) 5. Free state tax filing turbotax . Free state tax filing turbotax       6. Free state tax filing turbotax Did you enter -0- on line 2 above?             No. Free state tax filing turbotax Multiply line 2 by line 3   6. Free state tax filing turbotax $     Yes. Free state tax filing turbotax Multiply line 1 by line 5. Free state tax filing turbotax If you lived in more than one locality in the same state during 2006, see page 4 of the instructions           7. Free state tax filing turbotax Enter your state and local general sales taxes paid on specified items, if any (see page 4 of the instructions) 7. Free state tax filing turbotax $   8. Free state tax filing turbotax Deduction for general sales taxes. Free state tax filing turbotax Add lines 1, 6, and 7. Free state tax filing turbotax Enter the result here and the total from all your state and local general sales tax deduction worksheets, if you completed more than one, on Schedule A, line 5. Free state tax filing turbotax Be sure to enter “ST” on the dotted line to the left of the entry space 8. Free state tax filing turbotax $     Instructions for the State and Local General Sales Tax Deduction Worksheet Line 1. Free state tax filing turbotax    If you lived in the same state for all of 2006, enter the applicable amount, based on your 2006 income and exemptions, from the optional state sales tax table for your state on page 5 or 6. Free state tax filing turbotax Read down the “At least-But less than” columns for your state and find the line that includes your 2006 income. Free state tax filing turbotax If married filing separately, do not include your spouse's income. Free state tax filing turbotax Your 2006 income is the amount shown on your Form 1040, line 38, plus any nontaxable items, such as the following. Free state tax filing turbotax Tax-exempt interest. Free state tax filing turbotax Veterans' benefits. Free state tax filing turbotax Nontaxable combat pay. Free state tax filing turbotax Workers' compensation. Free state tax filing turbotax Nontaxable part of social security and railroad retirement benefits. Free state tax filing turbotax Nontaxable part of IRA, pension, or annuity distributions. Free state tax filing turbotax Do not include rollovers. Free state tax filing turbotax Public assistance payments. Free state tax filing turbotax The exemptions column refers to the number of exemptions claimed on Form 1040, line 6d. Free state tax filing turbotax Do not include any additional exemptions you listed on Form 8914 for individuals displaced by Hurricane Katrina. Free state tax filing turbotax What if you lived in more than one state?    If you lived in more than one state during 2006, look up the table amount for each state using the above rules. Free state tax filing turbotax If there is no table for your state, the table amount is considered to be zero. Free state tax filing turbotax Multiply the table amount for each state you lived in by a fraction. Free state tax filing turbotax The numerator of the fraction is the number of days you lived in the state during 2006 and the denominator is the total number of days in the year (365). Free state tax filing turbotax Enter the total of the prorated table amounts for each state on line 1. Free state tax filing turbotax However, if you also lived in a locality during 2006 that imposed a local general sales tax, do not enter the total on line 1. Free state tax filing turbotax Instead, complete a separate worksheet for each state you lived in and enter the prorated amount for that state on line 1. Free state tax filing turbotax Example. Free state tax filing turbotax You lived in State A from January 1 through August 31, 2006 (243 days), and in State B from September 1 through December 31, 2006 (122 days). Free state tax filing turbotax The table amount for State A is $500. Free state tax filing turbotax The table amount for State B is $400. Free state tax filing turbotax You would figure your state general sales tax as follows. Free state tax filing turbotax State A: $500 x 243/365 = $333   State B: $400 x 122/365 = 134   Total = $467   If none of the localities in which you lived during 2006 imposed a local general sales tax, enter $467 on line 1 of your worksheet. Free state tax filing turbotax Otherwise, complete a separate worksheet for State A and State B. Free state tax filing turbotax Enter $333 on line 1 of the State A worksheet and $134 on line 1 of the State B worksheet. Free state tax filing turbotax Line 2. Free state tax filing turbotax   If you checked the “No” box, enter -0- on line 2, and go to line 3. Free state tax filing turbotax If you checked the “Yes” box and lived in the same locality for all of 2006, enter the applicable amount, based on your 2006 income and exemptions, from the optional local sales tax table for your locality on page 7. Free state tax filing turbotax Read down the “At least-But less than” columns for your locality and find the line that includes your 2006 income. Free state tax filing turbotax See the line 1 instructions on this page to figure your 2006 income. Free state tax filing turbotax The exemptions column refers to the number of exemptions claimed on Form 1040, line 6d. Free state tax filing turbotax Do not include any additional exemptions you listed on Form 8914 for individuals displaced by Hurricane Katrina. Free state tax filing turbotax What if you lived in more than one locality?   If you lived in more than one locality during 2006, look up the table amount for each locality using the above rules. Free state tax filing turbotax If there is no table for your locality, the table amount is considered to be zero. Free state tax filing turbotax Multiply the table amount for each locality you lived in by a fraction. Free state tax filing turbotax The numerator of the fraction is the number of days you lived in the locality during 2006 and the denominator is the total number of days in the year (365). Free state tax filing turbotax If you lived in more than one locality in the same state and the local general sales tax rate was the same for each locality, enter the total of the prorated table amounts for each locality in that state on line 2. Free state tax filing turbotax Otherwise, complete a separate worksheet for lines 2 through 6 for each locality and enter each prorated table amount on line 2 of the applicable worksheet. Free state tax filing turbotax Example. Free state tax filing turbotax You lived in Locality 1 from January 1 through August 31, 2006 (243 days), and in Locality 2 from September 1 through December 31, 2006 (122 days). Free state tax filing turbotax The table amount for Locality 1 is $100. Free state tax filing turbotax The table amount for Locality 2 is $150. Free state tax filing turbotax You would figure the amount to enter on line 2 as follows. Free state tax filing turbotax Note that this amount may not equal your local sales tax deduction, which is figured on line 6 of the worksheet. Free state tax filing turbotax Locality 1: $100 x 243/365 = $67   Locality 2: $150 x 122/365 = 50   Total = $117   Line 3. Free state tax filing turbotax   If you lived in California, check the “No” box if your combined state and local general sales tax rate is 7. Free state tax filing turbotax 25%. Free state tax filing turbotax Otherwise, check the “Yes” box and include on line 3 only the part of the combined rate that is more than 7. Free state tax filing turbotax 25%. Free state tax filing turbotax   If you lived in Nevada, check the “No” box if your combined state and local general sales tax rate is 6. Free state tax filing turbotax 5%. Free state tax filing turbotax Otherwise, check the “Yes” box and include on line 3 only the part of the combined rate that is more than 6. Free state tax filing turbotax 5%. Free state tax filing turbotax   If you lived in Texarkana, Arkansas, check the “Yes” box and enter “4. Free state tax filing turbotax 0” on line 3. Free state tax filing turbotax Your local general sales tax rate of 4. Free state tax filing turbotax 0% includes the additional 1. Free state tax filing turbotax 0% Arkansas state sales tax rate for Texarkana and the 1. Free state tax filing turbotax 5% sales tax rate for Miller County. Free state tax filing turbotax What if your local general sales tax rate changed during 2006?    If you checked the “Yes” box and your local general sales tax rate changed during 2006, figure the rate to enter on line 3 as follows. Free state tax filing turbotax Multiply each tax rate for the period it was in effect by a fraction. Free state tax filing turbotax The numerator of the fraction is the number of days the rate was in effect during 2006 and the denominator is the total number of days in the year (365). Free state tax filing turbotax Enter the total of the prorated tax rates on line 3. Free state tax filing turbotax Example. Free state tax filing turbotax Locality 1 imposed a 1% local general sales tax from January 1 through September 30, 2006 (273 days). Free state tax filing turbotax The rate increased to 1. Free state tax filing turbotax 75% for the period from October 1 through December 31, 2006 (92 days). Free state tax filing turbotax You would enter “1. Free state tax filing turbotax 189” on line 3, figured as follows. Free state tax filing turbotax January 1 - September 30: 1. Free state tax filing turbotax 00 x 273/365 = 0. Free state tax filing turbotax 748   October 1 - December 31: 1. Free state tax filing turbotax 75 x 92/365 = 0. Free state tax filing turbotax 441   Total = 1. Free state tax filing turbotax 189   What if you lived in more than one locality in the same state during 2006?    Complete a separate worksheet for lines 2 through 6 for each locality in your state if you lived in more than one locality in the same state during 2006 and either of the following applies. Free state tax filing turbotax Each locality did not have the same local general sales tax rate. Free state tax filing turbotax You lived in Texarkana, AR, or Los Angeles County, CA. Free state tax filing turbotax   To figure the amount to enter on line 3 of the worksheet for each locality in which you lived (except a locality for which you used the table on page 7 to figure your local general sales tax deduction), multiply the local general sales tax rate by a fraction. Free state tax filing turbotax The numerator of the fraction is the number of days you lived in the locality during 2006 and the denominator is the total number of days in the year (365). Free state tax filing turbotax Example. Free state tax filing turbotax You lived in Locality 1 from January 1 through August 31, 2006 (243 days), and in Locality 2 from September 1 through December 31, 2006 (122 days). Free state tax filing turbotax The local general sales tax rate for Locality 1 is 1%. Free state tax filing turbotax The rate for Locality 2 is 1. Free state tax filing turbotax 75%. Free state tax filing turbotax You would enter “0. Free state tax filing turbotax 666” on line 3 for the Locality 1 worksheet and “0. Free state tax filing turbotax 585” for the Locality 2 worksheet, figured as follows. Free state tax filing turbotax Locality 1: 1. Free state tax filing turbotax 00 x 243/365 = 0. Free state tax filing turbotax 666   Locality 2: 1. Free state tax filing turbotax 75 x 122/365 = 0. Free state tax filing turbotax 585   Line 6. Free state tax filing turbotax   If you lived in more than one locality in the same state during 2006, you should have completed line 1 only on the first worksheet for that state and separate worksheets for lines 2 through 6 for any other locality within that state in which you lived during 2006. Free state tax filing turbotax If you checked the “Yes” box on line 6 of any of those worksheets, multiply line 5 of that worksheet by the amount that you entered on line 1 for that state on the first worksheet. Free state tax filing turbotax Line 7. Free state tax filing turbotax    Enter on line 7 any state and local general sales taxes paid on the following specified items. Free state tax filing turbotax If you are completing more than one worksheet, include the total for line 7 on only one of the worksheets. Free state tax filing turbotax A motor vehicle (including a car, motorcycle, motor home, recreational vehicle, sport utility vehicle, truck, van, and off-road vehicle). Free state tax filing turbotax Also include any state and local general sales taxes paid for a leased motor vehicle. Free state tax filing turbotax If the state sales tax rate on these items is higher than the general sales tax rate, only include the amount of tax you would have paid at the general sales tax rate. Free state tax filing turbotax An aircraft or boat, if the tax rate was the same as the general sales tax rate. Free state tax filing turbotax A home (including a mobile home or prefabricated home) or substantial addition to or major renovation of a home, but only if the tax rate was the same as the general sales tax rate and any of the following applies. Free state tax filing turbotax Your state or locality imposes a general sales tax directly on the sale of a home or on the cost of a substantial addition or major renovation. Free state tax filing turbotax You purchased the materials to build a home or substantial addition or to perform a major renovation and paid the sales tax directly. Free state tax filing turbotax Under your state law, your contractor is considered your agent in the construction of the home or substantial addition or the performance of a major renovation. Free state tax filing turbotax The contract must state that the contractor is authorized to act in your name and must follow your directions on construction decisions. Free state tax filing turbotax In this case, you will be considered to have purchased any items subject to a sales tax and to have paid the sales tax directly. Free state tax filing turbotax   Do not include sales taxes paid on items used in your trade or business. Free state tax filing turbotax If you received a refund of state or local general sales taxes in 2006, see Refund of general sales taxes on page 1. Free state tax filing turbotax Prev  Up  Next   Home   More Online Publications