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

How To Do An Amendment Tax Return

2010 EfileFree File TaxesEz 1040 FormE File Tax Extension For FreeTax Forms For 2011Irs Amendment1040a 2012 Tax FormMa Taxes Ng Army MilTurbo Tax Military DiscountWhere Can I File My Federal And State Taxes Online For Free1040x Amended Tax Return FormTax Amendment FormH&r Block 2011H&r Tax CutTax Form 1040ez2010 1040ez Tax FormHow To File 1040x FormIl 1040x2012 1040 Ez Tax FormStudent Filing TaxesHow Do I File My Taxes For Last YearHow To Fill Out A 1040x Step By StepFiling 2010 Taxes Late2012 Tax Return OnlineFile My State Taxes For Free OnlineOnline Tax Filing 2012How To Fill Out 1040ez FormH And R Block 1040ezIrsFederal Income Tax Form 1040ezWww Taxact Com 2011Federal Tax Form 1040State Tax Free StatesState Tax Filing OnlineStudent Tax FilingFree Ez Tax Form1040ez BookletMilitary Tax PreparationAmending Your Tax Return2010 1040 Tax Form

How To Do An Amendment Tax Return

How to do an amendment tax return Index , Hardest Hit Fund and Emergency Homeowners' Loan Programs. How to do an amendment tax return , Form 1098. How to do an amendment tax return , How To Report, Form 1098. How to do an amendment tax return A Acquisition debt, Fully deductible interest. How to do an amendment tax return , Home Acquisition Debt, Part of home not a qualified home. How to do an amendment tax return Alimony, Divorced or separated individuals. How to do an amendment tax return Amortization Points, General Rule Appraisal fees, Amounts charged for services. How to do an amendment tax return Armed forces Housing allowance, Ministers' and military housing allowance. How to do an amendment tax return Assistance (see Tax help) Average mortgage balance, Average Mortgage Balance B Borrowers More than one, More than one borrower. How to do an amendment tax return Seller-paid points, treatment by buyer, Treatment by buyer. How to do an amendment tax return Business Average mortgage balance, total amount of interest otherwise allowable to each activity, Line 13 Mortgage proceeds used for, Mortgage proceeds used for business or investment. How to do an amendment tax return C Clergy Ministers' and military housing allowance, Ministers' and military housing allowance. How to do an amendment tax return Cooperative housing, Cooperative apartment owner. How to do an amendment tax return , Cooperative apartment owner. How to do an amendment tax return , Special Rule for Tenant-Stockholders in Cooperative Housing Corporations, Form 1098. How to do an amendment tax return Cost of home or improvements, Cost of home or improvements. How to do an amendment tax return Credits, Mortgage interest credit. How to do an amendment tax return D Date of mortgage, Date of the mortgage. How to do an amendment tax return Debt Choice to treat as not secured by home, Choice to treat the debt as not secured by your home. How to do an amendment tax return Grandfathered, Fully deductible interest. How to do an amendment tax return , Grandfathered Debt, Line-of-credit mortgage. How to do an amendment tax return Home acquisition, Fully deductible interest. How to do an amendment tax return , Home Acquisition Debt Home equity, Fully deductible interest. How to do an amendment tax return , Home Equity Debt Home equity only (Table 1), Home equity debt only. How to do an amendment tax return Not secured by home, Debt not secured by home. How to do an amendment tax return Secured, Secured Debt Deductions, Part I. How to do an amendment tax return Home Mortgage Interest, Hardest Hit Fund and Emergency Homeowners' Loan Programs. How to do an amendment tax return Home office, Office in home. How to do an amendment tax return Mortgage insurance premiums, Claiming your deductible mortgage insurance premiums. How to do an amendment tax return Points, General Rule, Claiming your deductible points. How to do an amendment tax return Deed preparation costs, Amounts charged for services. How to do an amendment tax return Divorced taxpayers, Divorced or separated individuals. How to do an amendment tax return , Acquiring an interest in a home because of a divorce. How to do an amendment tax return E Emergency Homeowners' Loan Program, Hardest Hit Fund and Emergency Homeowners' Loan Programs. How to do an amendment tax return Equity debt, Fully deductible interest. How to do an amendment tax return , Home Equity Debt, Fair market value (FMV). How to do an amendment tax return Equity debt only (Table 1), Home equity debt only. How to do an amendment tax return F Fair market value (FMV), Fair market value (FMV). How to do an amendment tax return Fees Appraisal, Amounts charged for services. How to do an amendment tax return Notaries, Amounts charged for services. How to do an amendment tax return Points (see Points) Figures (see Tables and figures) Form 1040, Schedule A, How To Report, Table 2. How to do an amendment tax return Where To Deduct Your Interest Expense Form 1040, Schedule C or C-EZ, Table 2. How to do an amendment tax return Where To Deduct Your Interest Expense Form 1040, Schedule E, Table 2. How to do an amendment tax return Where To Deduct Your Interest Expense Form 1040, Schedule F, Table 2. How to do an amendment tax return Where To Deduct Your Interest Expense Form 1098, Form 1098, Mortgage Interest Statement Mortgage insurance premiums, Form 1098. How to do an amendment tax return Form 8396, Mortgage interest credit. How to do an amendment tax return Free tax services, Free help with your tax return. How to do an amendment tax return G Grandfathered debt, Fully deductible interest. How to do an amendment tax return , Grandfathered Debt, Line-of-credit mortgage. How to do an amendment tax return Ground rents, Redeemable ground rents. How to do an amendment tax return H Hardest Hit Fund Program, Hardest Hit Fund and Emergency Homeowners' Loan Programs. How to do an amendment tax return Help (see Tax help) Home, Publication 936 - Introductory Material Acquisition debt, Fully deductible interest. How to do an amendment tax return , Home Acquisition Debt Construction, Home under construction. How to do an amendment tax return Cost of, Cost of home or improvements. How to do an amendment tax return Destroyed, Home destroyed. How to do an amendment tax return Divided use, Divided use of your home. How to do an amendment tax return , Part of home not a qualified home. How to do an amendment tax return , Part of home not a qualified home. How to do an amendment tax return Equity debt, Fully deductible interest. How to do an amendment tax return , Home Equity Debt Equity debt only (Table 1), Home equity debt only. How to do an amendment tax return Fair market value, Fair market value (FMV). How to do an amendment tax return Grandfathered debt, Fully deductible interest. How to do an amendment tax return , Grandfathered Debt, Line-of-credit mortgage. How to do an amendment tax return Improvement loan, points, Home improvement loan. How to do an amendment tax return Main, Main home. How to do an amendment tax return Office in, Office in home. How to do an amendment tax return Qualified, Qualified Home Renting out part of, Renting out part of home. How to do an amendment tax return Sale of, Sale of home. How to do an amendment tax return Second, Second home. How to do an amendment tax return Time-sharing arrangements, Time-sharing arrangements. How to do an amendment tax return Housing allowance Ministers and military, Ministers' and military housing allowance. How to do an amendment tax return I Improvements Cost of, Cost of home or improvements. How to do an amendment tax return Home acquisition debt, Mortgage treated as used to buy, build, or improve home. How to do an amendment tax return Points, Home improvement loan. How to do an amendment tax return Substantial, Substantial improvement. How to do an amendment tax return Interest, Part I. How to do an amendment tax return Home Mortgage Interest (see also Mortgage interest) Interest rate method, Interest paid divided by interest rate method. How to do an amendment tax return Refunded, Refunds of interest. How to do an amendment tax return , Refunded interest. How to do an amendment tax return Where to deduct, Table 2. How to do an amendment tax return Where To Deduct Your Interest Expense Investments Average mortgage balance and total amount of interest allowable, Line 13 Mortgage proceeds used for, Mortgage proceeds invested in tax-exempt securities. How to do an amendment tax return , Mortgage proceeds used for business or investment. How to do an amendment tax return J Joint returns, Married taxpayers. How to do an amendment tax return L Lender mortgage statements, Statements provided by your lender. How to do an amendment tax return Limits Cooperative housing, mortgage interest deduction, Limits on deduction. How to do an amendment tax return Deductibility of mortgage insurance premiums, Limit on deduction. How to do an amendment tax return Deductibility of points, Limits on deduction. How to do an amendment tax return Home acquisition debt, Home acquisition debt limit. How to do an amendment tax return Home equity debt, Home equity debt limit. How to do an amendment tax return Home mortgage interest deduction, Form 1098. How to do an amendment tax return Qualified loan limit, Table 1. How to do an amendment tax return Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. How to do an amendment tax return , Average Mortgage Balance Line-of-credit mortgage, Line-of-credit mortgage. How to do an amendment tax return Loans, Mortgage proceeds used for business or investment. How to do an amendment tax return , Mortgage treated as used to buy, build, or improve home. How to do an amendment tax return (see also Mortgages) Home improvement, points, Home improvement loan. How to do an amendment tax return Qualified loan limit, Table 1. How to do an amendment tax return Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. How to do an amendment tax return M Main home, Main home. How to do an amendment tax return Married taxpayers, Married taxpayers. How to do an amendment tax return Military housing allowance, Ministers' and military housing allowance. How to do an amendment tax return Ministers' housing allowance, Ministers' and military housing allowance. How to do an amendment tax return Missing children, photographs of, Reminders Mixed-use mortgages, Mixed-use mortgages. How to do an amendment tax return Mortgage insurance premiums Claiming deductible, Claiming your deductible mortgage insurance premiums. How to do an amendment tax return Mortgage interest, Publication 936 - Introductory Material, Part I. How to do an amendment tax return Home Mortgage Interest Cooperative housing, Figuring deductible home mortgage interest. How to do an amendment tax return Credit, Mortgage interest credit. How to do an amendment tax return Fully deductible interest, Fully deductible interest. How to do an amendment tax return Home mortgage interest, Part I. How to do an amendment tax return Home Mortgage Interest, Hardest Hit Fund and Emergency Homeowners' Loan Programs. How to do an amendment tax return How to report, How To Report Late payment charges, Late payment charge on mortgage payment. How to do an amendment tax return Limits on deduction, Part II. How to do an amendment tax return Limits on Home Mortgage Interest Deduction Ministers' and military housing allowance, Ministers' and military housing allowance. How to do an amendment tax return Prepaid interest, Prepaid interest. How to do an amendment tax return , Prepaid interest on Form 1098. How to do an amendment tax return Prepayment penalty, Mortgage prepayment penalty. How to do an amendment tax return Refunds, Refunds of interest. How to do an amendment tax return , Refunded interest. How to do an amendment tax return Sale of home, Sale of home. How to do an amendment tax return Special situations, Special Situations Statement, Form 1098, Mortgage Interest Statement Where to deduct, Table 2. How to do an amendment tax return Where To Deduct Your Interest Expense Worksheet to figure (Table 1), Table 1. How to do an amendment tax return Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. How to do an amendment tax return Mortgages Assistance payments (under sec. How to do an amendment tax return 235 of National Housing Act), Mortgage assistance payments under section 235 of the National Housing Act. How to do an amendment tax return Average balance, Average Mortgage Balance Date of, Date of the mortgage. How to do an amendment tax return Ending early, Mortgage ending early. How to do an amendment tax return Late qualifying, Mortgage that qualifies later. How to do an amendment tax return Line-of-credit, Line-of-credit mortgage. How to do an amendment tax return Mixed-use, Mixed-use mortgages. How to do an amendment tax return Preparation costs for note or deed of trust, Amounts charged for services. How to do an amendment tax return Proceeds invested in tax-exempt securities, Mortgage proceeds invested in tax-exempt securities. How to do an amendment tax return Proceeds used for business, Mortgage proceeds used for business or investment. How to do an amendment tax return Proceeds used for investment, Mortgage proceeds used for business or investment. How to do an amendment tax return Qualified loan limit, Table 1. How to do an amendment tax return Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. How to do an amendment tax return , Average Mortgage Balance Refinanced, Refinancing. How to do an amendment tax return , Refinanced home acquisition debt. How to do an amendment tax return , Refinanced grandfathered debt. How to do an amendment tax return Reverse, Reverse mortgages. How to do an amendment tax return Statements provided by lender, Statements provided by your lender. How to do an amendment tax return To buy, build, or improve, Mortgage treated as used to buy, build, or improve home. How to do an amendment tax return Wraparound, Wraparound mortgage. How to do an amendment tax return N Nonredeemable ground rents, Nonredeemable ground rents. How to do an amendment tax return Notary fees, Amounts charged for services. How to do an amendment tax return O Office in home, Office in home. How to do an amendment tax return P Penalties Mortgage prepayment, Mortgage prepayment penalty. How to do an amendment tax return Points, Points, Deduction Allowed in Year Paid, Form 1098. How to do an amendment tax return Claiming deductible, Claiming your deductible points. How to do an amendment tax return Exception to general rule, Deduction Allowed in Year Paid Excess, Excess points. How to do an amendment tax return Funds provided less than, Funds provided are less than points. How to do an amendment tax return General rule, General Rule Home improvement loans, Home improvement loan. How to do an amendment tax return Seller paid, Points paid by the seller. How to do an amendment tax return Prepaid interest, Prepaid interest. How to do an amendment tax return , Prepaid interest on Form 1098. How to do an amendment tax return Prepayment penalties, Mortgage prepayment penalty. How to do an amendment tax return Publications (see Tax help) Q Qualified homes, Qualified Home Qualified loan limit Average mortgage balance, Average Mortgage Balance Worksheet to figure (Table 1), Table 1. How to do an amendment tax return Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. How to do an amendment tax return R Redeemable ground rents, Redeemable ground rents. How to do an amendment tax return Refinancing, Refinancing. How to do an amendment tax return Grandfathered debt, Refinanced grandfathered debt. How to do an amendment tax return Home acquisition debt, Refinanced home acquisition debt. How to do an amendment tax return Refunds, Refunds of interest. How to do an amendment tax return , Refunded interest. How to do an amendment tax return Rent Nonredeemable ground rents, Nonredeemable ground rents. How to do an amendment tax return Redeemable ground rents, Redeemable ground rents. How to do an amendment tax return Rental payments, Rental payments. How to do an amendment tax return Renting of home Part of, Renting out part of home. How to do an amendment tax return Time-sharing arrangements, Rental of time-share. How to do an amendment tax return Repairs, Substantial improvement. How to do an amendment tax return Reverse Mortgages, Reverse mortgages. How to do an amendment tax return S Sale of home, Sale of home. How to do an amendment tax return Second home, Second home. How to do an amendment tax return , Deduction Allowed in Year Paid Secured debt, Secured Debt Seller-paid points, Points paid by the seller. How to do an amendment tax return Separate returns, Separate returns. How to do an amendment tax return Separated taxpayers, Divorced or separated individuals. How to do an amendment tax return Spouses, Married taxpayers. How to do an amendment tax return Statements provided by lender, Statements provided by your lender. How to do an amendment tax return Stock Cooperative housing, Stock used to secure debt. How to do an amendment tax return T Tables and figures Deductible home mortgage interest Fully deductible, determination of (Figure A), Fully deductible interest. How to do an amendment tax return How to figure (Table 1), Table 1. How to do an amendment tax return Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. How to do an amendment tax return Mortgage to buy, build, or improve home (Figure C), Mortgage treated as used to buy, build, or improve home. How to do an amendment tax return Points (Figure B), Points Qualified loan limit worksheet (Table 1), Table 1. How to do an amendment tax return Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. How to do an amendment tax return Tax credits, Mortgage interest credit. How to do an amendment tax return Tax help, How To Get Tax Help Tax-exempt securities Mortgage proceeds invested in, Mortgage proceeds invested in tax-exempt securities. How to do an amendment tax return Time-sharing arrangements, Time-sharing arrangements. How to do an amendment tax return V Valuation Fair market value, Fair market value (FMV). How to do an amendment tax return W Worksheets Deductible home mortgage interest, Table 1. How to do an amendment tax return Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. How to do an amendment tax return Qualified loan limit, Table 1. How to do an amendment tax return Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. How to do an amendment tax return Wraparound mortgages, Wraparound mortgage. How to do an amendment tax return Prev  Up     Home   More Online Publications
Print - Click this link to Print this page

SOI Tax Stats - SOI Projects, Contacts, and Public Release Information

Back to Tax Stats

Statistics of Income Projects and Contacts (PDF, revised March 2014)

This document contains a complete listing of Projects and Contacts for SOI’s current and future releases. Here you will find the project name and primary contact, program content, and projected date for public release.

Please contact the Statistical Information Service with questions.

The IRS Statistics of Income Division (SOI) produces data compiled from samples of tax and information returns filed with the IRS. A variety of Federal agencies, academics, researchers, and the general public use the information we gather, analyze, and publish to study tax policy, project tax revenues, and to estimate the overall impact and their effects on tax law changes.

Page Last Reviewed or Updated: 24-Mar-2014

The How To Do An Amendment Tax Return

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