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

Irs Easy Form

1040ez 2011 Online FormFile 2012 Taxes ElectronicallyFile Back Taxes OnlineE File 2010 Taxes Online2011 1040ez Tax Form2012 1040ez Form1040ez 2012 Fillable Form2011 1040 FormHow Do I File My 2011 Tax ReturnIrs Amendment Form InstructionsIncome Tax 2012 FormsWhere Do I File 2011 TaxesFed Tax Form 1040xPrior Year Tax Returns2012 Tax Return Form 1040Freetaxusa 2006Federal Tax SoftwareTaxslayer Com Main Aspx Destination1040nr2012 Income TaxesGo 2011 Taxes 2013Tax Software ComparisonIrs Tax TablesFiling 2012 Tax Return OnlineHow To Do State TaxesPenalties For Filing Taxes LateTax Return Preparation State Income Taxes1040 Ez FormsTax Return 2011Federal Tax Form 2012 EzFiling Taxes Online FreeAmended Utah State Tax ReturnFree State Tax PreparationForms TaxIrs Extention Form2006 Taxes OnlineAmend 1040Free E File 2012 Federal And StateAmended Tax Return FormHr Block Online

Irs Easy Form

Irs easy form Publication 537 - Main Content Table of Contents What Is an Installment Sale?Special rule. Irs easy form General RulesFiguring Installment Sale Income Reporting Installment Sale Income Other RulesElecting Out of the Installment Method Payments Received or Considered Received Escrow Account Depreciation Recapture Income Sale to a Related Person Like-Kind Exchange Contingent Payment Sale Single Sale of Several Assets Sale of a Business Unstated Interest and Original Issue Discount (OID) Disposition of an Installment Obligation Repossession Interest on Deferred Tax Reporting an Installment SaleRelated person. Irs easy form Several assets. Irs easy form Special situations. Irs easy form Schedule D (Form 1040). Irs easy form Form 4797. Irs easy form How To Get Tax Help What Is an Installment Sale? An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Irs easy form The rules for installment sales do not apply if you elect not to use the installment method (see Electing Out of the Installment Method under Other Rules, later) or the transaction is one for which the installment method may not apply. Irs easy form The installment sales method cannot be used for the following. Irs easy form Sale of inventory. Irs easy form   The regular sale of inventory of personal property does not qualify as an installment sale even if you receive a payment after the year of sale. Irs easy form See Sale of a Business under Other Rules, later. Irs easy form Dealer sales. Irs easy form   Sales of personal property by a person who regularly sells or otherwise disposes of the same type of personal property on the installment plan are not installment sales. Irs easy form This rule also applies to real property held for sale to customers in the ordinary course of a trade or business. Irs easy form However, the rule does not apply to an installment sale of property used or produced in farming. Irs easy form Special rule. Irs easy form   Dealers of time-shares and residential lots can treat certain sales as installment sales and report them under the installment method if they elect to pay a special interest charge. Irs easy form For more information, see section 453(l). Irs easy form Stock or securities. Irs easy form   You cannot use the installment method to report gain from the sale of stock or securities traded on an established securities market. Irs easy form You must report the entire gain on the sale in the year in which the trade date falls. Irs easy form Installment obligation. Irs easy form   The buyer's obligation to make future payments to you can be in the form of a deed of trust, note, land contract, mortgage, or other evidence of the buyer's debt to you. Irs easy form General Rules If a sale qualifies as an installment sale, the gain must be reported under the installment method unless you elect out of using the installment method. Irs easy form See Electing Out of the Installment Method under Other Rules, later, for information on recognizing the entire gain in the year of sale. Irs easy form Sale at a loss. Irs easy form   If your sale results in a loss, you cannot use the installment method. Irs easy form If the loss is on an installment sale of business or investment property, you can deduct it only in the tax year of sale. Irs easy form Unstated interest. Irs easy form   If your sale calls for payments in a later year and the sales contract provides for little or no interest, you may have to figure unstated interest, even if you have a loss. Irs easy form See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. Irs easy form Figuring Installment Sale Income You can use the following discussions or Form 6252 to help you determine gross profit, contract price, gross profit percentage, and installment sale income. Irs easy form Each payment on an installment sale usually consists of the following three parts. Irs easy form Interest income. Irs easy form Return of your adjusted basis in the property. Irs easy form Gain on the sale. Irs easy form In each year you receive a payment, you must include in income both the interest part and the part that is your gain on the sale. Irs easy form You do not include in income the part that is the return of your basis in the property. Irs easy form Basis is the amount of your investment in the property for installment sale purposes. Irs easy form Interest Income You must report interest as ordinary income. Irs easy form Interest is generally not included in a down payment. Irs easy form However, you may have to treat part of each later payment as interest, even if it is not called interest in your agreement with the buyer. Irs easy form Interest provided in the agreement is called stated interest. Irs easy form If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. Irs easy form See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. Irs easy form Adjusted Basis and Installment Sale Income (Gain on Sale) After you have determined how much of each payment to treat as interest, you treat the rest of each payment as if it were made up of two parts. Irs easy form A tax-free return of your adjusted basis in the property, and Your gain (referred to as installment sale income on Form 6252). Irs easy form Figuring adjusted basis for installment sale purposes. Irs easy form   You can use Worksheet A to figure your adjusted basis in the property for installment sale purposes. Irs easy form When you have completed the worksheet, you will also have determined the gross profit percentage necessary to figure your installment sale income (gain) for this year. Irs easy form Worksheet A. Irs easy form Figuring Adjusted Basis and Gross Profit Percentage 1. Irs easy form Enter the selling price for the property   2. Irs easy form Enter your adjusted basis for the property     3. Irs easy form Enter your selling expenses     4. Irs easy form Enter any depreciation recapture     5. Irs easy form Add lines 2, 3, and 4. Irs easy form  This is your adjusted basis for installment sale purposes   6. Irs easy form Subtract line 5 from line 1. Irs easy form If zero or less, enter -0-. Irs easy form  This is your gross profit     If the amount entered on line 6 is zero, stop here. Irs easy form You cannot use the installment method. Irs easy form   7. Irs easy form Enter the contract price for the property   8. Irs easy form Divide line 6 by line 7. Irs easy form This is your gross profit percentage   Selling price. Irs easy form   The selling price is the total cost of the property to the buyer and includes any of the following. Irs easy form Any money you are to receive. Irs easy form The fair market value (FMV) of any property you are to receive (FMV is discussed in Property Used As a Payment under Other Rules, later). Irs easy form Any existing mortgage or other debt the buyer pays, assumes, or takes (a note, mortgage, or any other liability, such as a lien, accrued interest, or taxes you owe on the property). Irs easy form Any of your selling expenses the buyer pays. Irs easy form   Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. Irs easy form Adjusted basis for installment sale purposes. Irs easy form   Your adjusted basis is the total of the following three items. Irs easy form Adjusted basis. Irs easy form Selling expenses. Irs easy form Depreciation recapture. Irs easy form Adjusted basis. Irs easy form   Basis is your investment in the property for installment sale purposes. Irs easy form The way you figure basis depends on how you acquire the property. Irs easy form The basis of property you buy is generally its cost. Irs easy form The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. Irs easy form   While you own property, various events may change your original basis. Irs easy form Some events, such as adding rooms or making permanent improvements, increase basis. Irs easy form Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. Irs easy form The result is adjusted basis. Irs easy form   For more information on how to figure basis and adjusted basis, see Publication 551. Irs easy form For more information regarding your basis in property you inherited from someone who died in 2010 and whose executor filed Form 8939, Allocation of Increase In Basis for Property Acquired From a Decedent, see Publication 4895. Irs easy form Selling expenses. Irs easy form   Selling expenses relate to the sale of the property. Irs easy form They include commissions, attorney fees, and any other expenses paid on the sale. Irs easy form Selling expenses are added to the basis of the sold property. Irs easy form Depreciation recapture. Irs easy form   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. Irs easy form See Depreciation Recapture Income under Other Rules, later. Irs easy form Gross profit. Irs easy form   Gross profit is the total gain you report on the installment method. Irs easy form   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. Irs easy form If the property you sold was your home, subtract from the gross profit any gain you can exclude. Irs easy form See Sale of Your Home , later, under Reporting Installment Sale Income. Irs easy form Contract price. Irs easy form   Contract price equals: The selling price, minus The mortgages, debts, and other liabilities assumed or taken by the buyer, plus The amount by which the mortgages, debts, and other liabilities assumed or taken by the buyer exceed your adjusted basis for installment sale purposes. Irs easy form Gross profit percentage. Irs easy form   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. Irs easy form This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. Irs easy form   The gross profit percentage generally remains the same for each payment you receive. Irs easy form However, see the Example under Selling Price Reduced, later, for a situation where the gross profit percentage changes. Irs easy form Example. Irs easy form You sell property at a contract price of $6,000 and your gross profit is $1,500. Irs easy form Your gross profit percentage is 25% ($1,500 ÷ $6,000). Irs easy form After subtracting interest, you report 25% of each payment, including the down payment, as installment sale income from the sale for the tax year you receive the payment. Irs easy form The remainder (balance) of each payment is the tax-free return of your adjusted basis. Irs easy form Amount to report as installment sale income. Irs easy form   Multiply the payments you receive each year (less interest) by the gross profit percentage. Irs easy form The result is your installment sale income for the tax year. Irs easy form In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. Irs easy form A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. Irs easy form For a detailed discussion, see Payments Received or Considered Received under Other Rules, later. Irs easy form Selling Price Reduced If the selling price is reduced at a later date, the gross profit on the sale also will change. Irs easy form You then must refigure the gross profit percentage for the remaining payments. Irs easy form Refigure your gross profit using Worksheet B. Irs easy form You will spread any remaining gain over future installments. Irs easy form Worksheet B. Irs easy form New Gross Profit Percentage — Selling Price Reduced 1. Irs easy form Enter the reduced selling  price for the property   2. Irs easy form Enter your adjusted  basis for the  property     3. Irs easy form Enter your selling  expenses     4. Irs easy form Enter any depreciation  recapture     5. Irs easy form Add lines 2, 3, and 4. Irs easy form   6. Irs easy form Subtract line 5 from line 1. Irs easy form  This is your adjusted  gross profit   7. Irs easy form Enter any installment sale  income reported in  prior year(s)   8. Irs easy form Subtract line 7 from line 6   9. Irs easy form Future installments   10. Irs easy form Divide line 8 by line 9. Irs easy form  This is your new gross profit percentage*   * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Irs easy form Example. Irs easy form In 2011, you sold land with a basis of $40,000 for $100,000. Irs easy form Your gross profit was $60,000. Irs easy form You received a $20,000 down payment and the buyer's note for $80,000. Irs easy form The note provides for four annual payments of $20,000 each, plus 8% interest, beginning in 2012. Irs easy form Your gross profit percentage is 60%. Irs easy form You reported a gain of $12,000 on each payment received in 2011 and 2012. Irs easy form In 2013, you and the buyer agreed to reduce the purchase price to $85,000 and payments during 2013, 2014, and 2015 are reduced to $15,000 for each year. Irs easy form The new gross profit percentage, 46. Irs easy form 67%, is figured on Example—Worksheet B. Irs easy form You will report a gain of $7,000 (46. Irs easy form 67% of $15,000) on each of the $15,000 installments due in 2013, 2014, and 2015. Irs easy form Example — Worksheet B. Irs easy form New Gross Profit Percentage — Selling Price Reduced 1. Irs easy form Enter the reduced selling  price for the property 85,000 2. Irs easy form Enter your adjusted  basis for the  property 40,000   3. Irs easy form Enter your selling  expenses -0-   4. Irs easy form Enter any depreciation  recapture -0-   5. Irs easy form Add lines 2, 3, and 4. Irs easy form 40,000 6. Irs easy form Subtract line 5 from line 1. Irs easy form  This is your adjusted  gross profit 45,000 7. Irs easy form Enter any installment sale  income reported in  prior year(s) 24,000 8. Irs easy form Subtract line 7 from line 6 21,000 9. Irs easy form Future installments 45,000 10. Irs easy form Divide line 8 by line 9. Irs easy form  This is your new gross profit percentage* 46. Irs easy form 67% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Irs easy form Reporting Installment Sale Income Generally, you will use Form 6252 to report installment sale income from casual sales of real or personal property during the tax year. Irs easy form You also will have to report the installment sale income on Schedule D (Form 1040), Capital Gains and Losses, or Form 4797, or both. Irs easy form See Schedule D (Form 1040) and Form 4797 , later. Irs easy form If the property was your main home, you may be able to exclude part or all of the gain. Irs easy form See Sale of Your Home , later. Irs easy form Form 6252 Use Form 6252 to report an installment sale in the year it takes place and to report payments received, or considered received because of related party resales, in later years. Irs easy form Attach it to your tax return for each year. Irs easy form Form 6252 will help you determine the gross profit, contract price, gross profit percentage, and installment sale income. Irs easy form Which parts to complete. Irs easy form   Which part to complete depends on whether you are filing the form for the year of sale or a later year. Irs easy form Year of sale. Irs easy form   Complete lines 1 through 4, Part I, and Part II. Irs easy form If you sold property to a related party during the year, also complete Part III. Irs easy form Later years. Irs easy form   Complete lines 1 through 4 and Part II for any year in which you receive a payment from an installment sale. Irs easy form   If you sold a marketable security to a related party after May 14, 1980, and before January 1, 1987, complete Form 6252 for each year of the installment agreement, even if you did not receive a payment. Irs easy form (After December 31, 1986, the installment method is not available for the sale of marketable securities. Irs easy form ) Complete lines 1 through 4 and Part II for any year in which you receive a payment from the sale. Irs easy form Complete Part III unless you received the final payment during the tax year. Irs easy form   If you sold property other than a marketable security to a related party after May 14, 1980, complete Form 6252 for the year of sale and for 2 years after the year of sale, even if you did not receive a payment. Irs easy form Complete lines 1 through 4 and Part II for any year during this 2-year period in which you receive a payment from the sale. Irs easy form Complete Part III for the 2 years after the year of sale unless you received the final payment during the tax year. Irs easy form Schedule D (Form 1040) Enter the gain figured on Form 6252 (line 26) for personal-use property (capital assets) on Schedule D (Form 1040), as a short-term gain (line 4) or long-term gain (line 11). Irs easy form If your gain from the installment sale qualifies for long-term capital gain treatment in the year of sale, it will continue to qualify in later tax years. Irs easy form Your gain is long-term if you owned the property for more than 1 year when you sold it. Irs easy form Form 4797 An installment sale of property used in your business or that earns rent or royalty income may result in a capital gain, an ordinary gain, or both. Irs easy form All or part of any gain from the disposition of the property may be ordinary gain from depreciation recapture. Irs easy form For trade or business property held for more than 1 year, enter the amount from line 26 of Form 6252 on Form 4797, line 4. Irs easy form If the property was held 1 year or less or you have an ordinary gain from the sale of a noncapital asset (even if the holding period is more than 1 year), enter this amount on Form 4797, line 10, and write “From Form 6252. Irs easy form ” Sale of Your Home If you sell your home, you may be able to exclude all or part of the gain on the sale. Irs easy form See Publication 523 for information about excluding the gain. Irs easy form If the sale is an installment sale, any gain you exclude is not included in gross profit when figuring your gross profit percentage. Irs easy form Seller-financed mortgage. Irs easy form   If you finance the sale of your home to an individual, both you and the buyer may have to follow special reporting procedures. Irs easy form   When you report interest income received from a buyer who uses the property as a personal residence, write the buyer's name, address, and social security number (SSN) on line 1 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Irs easy form   When deducting the mortgage interest, the buyer must write your name, address, and SSN on line 11 of Schedule A (Form 1040), Itemized Deductions. Irs easy form   If either person fails to include the other person's SSN, a $50 penalty will be assessed. Irs easy form Other Rules The rules discussed in this part of the publication apply only in certain circumstances or to certain types of property. Irs easy form The following topics are discussed. Irs easy form Electing out of the installment method. Irs easy form Payments received or considered received. Irs easy form Escrow account. Irs easy form Depreciation recapture income. Irs easy form Sale to a related person. Irs easy form Like-kind exchange. Irs easy form Contingent payment sale. Irs easy form Single sale of several assets. Irs easy form Sale of a business. Irs easy form Unstated interest and original issue discount. Irs easy form Disposition of an installment obligation. Irs easy form Repossession. Irs easy form Interest on deferred tax. Irs easy form Electing Out of the Installment Method If you elect not to use the installment method, you generally report the entire gain in the year of sale, even though you do not receive all the sale proceeds in that year. Irs easy form To figure the amount of gain to report, use the fair market value (FMV) of the buyer's installment obligation that represents the buyer's debt to you. Irs easy form Notes, mortgages, and land contracts are examples of obligations that are included at FMV. Irs easy form You must figure the FMV of the buyer's installment obligation, whether or not you would actually be able to sell it. Irs easy form If you use the cash method of accounting, the FMV of the obligation will never be considered to be less than the FMV of the property sold (minus any other consideration received). Irs easy form Example. Irs easy form You sold a parcel of land for $50,000. Irs easy form You received a $10,000 down payment and will receive the balance over the next 10 years at $4,000 a year, plus 8% interest. Irs easy form The buyer gave you a note for $40,000. Irs easy form The note had an FMV of $40,000. Irs easy form You paid a commission of 6%, or $3,000, to a broker for negotiating the sale. Irs easy form The land cost $25,000, and you owned it for more than one year. Irs easy form You decide to elect out of the installment method and report the entire gain in the year of sale. Irs easy form Gain realized:     Selling price $50,000 Minus: Property's adj. Irs easy form basis $25,000     Commission 3,000 28,000 Gain realized $22,000 Gain recognized in year of sale:   Cash $10,000 Market value of note 40,000 Total realized in year of sale $50,000 Minus: Property's adj. Irs easy form basis $25,000     Commission 3,000 28,000 Gain recognized $22,000 The recognized gain of $22,000 is long-term capital gain. Irs easy form You include the entire gain in income in the year of sale, so you do not include in income any principal payments you receive in later tax years. Irs easy form The interest on the note is ordinary income and is reported as interest income each year. Irs easy form How to elect out. Irs easy form   To make this election, do not report your sale on Form 6252. Irs easy form Instead, report it on Form 8949, Sales and Other Dispositions of Capital Assets, Form 4797, or both. Irs easy form When to elect out. Irs easy form   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. Irs easy form Automatic six-month extension. Irs easy form   If you timely file your tax return without making the election, you still can make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). Irs easy form Write “Filed pursuant to section 301. Irs easy form 9100-2” at the top of the amended return and file it where the original return was filed. Irs easy form Revoking the election. Irs easy form   Once made, the election can be revoked only with IRS approval. Irs easy form A revocation is retroactive. Irs easy form You will not be allowed to revoke the election if either of the following applies. Irs easy form One of the purposes is to avoid federal income tax. Irs easy form The tax year in which any payment was received has closed. Irs easy form Payments Received or Considered Received You must figure your gain each year on the payments you receive, or are treated as receiving, from an installment sale. Irs easy form In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. Irs easy form These situations occur when the buyer assumes or pays any of your debts, such as a loan, or pays any of your expenses, such as a sales commission. Irs easy form However, as discussed later, the buyer's assumption of your debt is treated as a recovery of your basis rather than as a payment in many cases. Irs easy form Buyer Pays Seller's Expenses If the buyer pays any of your expenses related to the sale of your property, it is considered a payment to you in the year of sale. Irs easy form Include these expenses in the selling and contract prices when figuring the gross profit percentage. Irs easy form Buyer Assumes Mortgage If the buyer assumes or pays off your mortgage, or otherwise takes the property subject to the mortgage, the following rules apply. Irs easy form Mortgage not more than basis. Irs easy form   If the buyer assumes a mortgage that is not more than your installment sale basis in the property, it is not considered a payment to you. Irs easy form It is considered a recovery of your basis. Irs easy form The contract price is the selling price minus the mortgage. Irs easy form Example. Irs easy form You sell property with an adjusted basis of $19,000. Irs easy form You have selling expenses of $1,000. Irs easy form The buyer assumes your existing mortgage of $15,000 and agrees to pay you $10,000 (a cash down payment of $2,000 and $2,000 (plus 12% interest) in each of the next 4 years). Irs easy form The selling price is $25,000 ($15,000 + $10,000). Irs easy form Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). Irs easy form The contract price is $10,000 ($25,000 − $15,000 mortgage). Irs easy form Your gross profit percentage is 50% ($5,000 ÷ $10,000). Irs easy form You report half of each $2,000 payment received as gain from the sale. Irs easy form You also report all interest you receive as ordinary income. Irs easy form Mortgage more than basis. Irs easy form   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. Irs easy form The part of the mortgage greater than your basis is treated as a payment received in the year of sale. Irs easy form   To figure the contract price, subtract the mortgage from the selling price. Irs easy form This is the total amount (other than interest) you will receive directly from the buyer. Irs easy form Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). Irs easy form The contract price is then the same as your gross profit from the sale. Irs easy form    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. Irs easy form Example. Irs easy form The selling price for your property is $9,000. Irs easy form The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. Irs easy form Your adjusted basis in the property is $4,400. Irs easy form You have selling expenses of $600, for a total installment sale basis of $5,000. Irs easy form The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). Irs easy form This amount is included in the contract price and treated as a payment received in the year of sale. Irs easy form The contract price is $4,000: Selling price $9,000 Minus: Mortgage (6,000) Amount actually received $3,000 Add difference:   Mortgage $6,000   Minus: Installment sale basis 5,000 1,000 Contract price $4,000       Your gross profit on the sale is also $4,000: Selling price $9,000 Minus: Installment sale basis (5,000) Gross profit $4,000 Your gross profit percentage is 100%. Irs easy form Report 100% of each payment (less interest) as gain from the sale. Irs easy form Treat the $1,000 difference between the mortgage and your installment sale basis as a payment and report 100% of it as gain in the year of sale. Irs easy form Mortgage Canceled If the buyer of your property is the person who holds the mortgage on it, your debt is canceled, not assumed. Irs easy form You are considered to receive a payment equal to the outstanding canceled debt. Irs easy form Example. Irs easy form Mary Jones loaned you $45,000 in 2009 in exchange for a note and a mortgage in a tract of land you owned. Irs easy form On April 4, 2013, she bought the land for $70,000. Irs easy form At that time, $30,000 of her loan to you was outstanding. Irs easy form She agreed to forgive this $30,000 debt and to pay you $20,000 (plus interest) on August 1, 2013, and $20,000 on August 1, 2014. Irs easy form She did not assume an existing mortgage. Irs easy form She canceled the $30,000 debt you owed her. Irs easy form You are considered to have received a $30,000 payment at the time of the sale. Irs easy form Buyer Assumes Other Debts If the buyer assumes any other debts, such as a loan or back taxes, it may be considered a payment to you in the year of sale. Irs easy form If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. Irs easy form Compare the debt to your installment sale basis in the property being sold. Irs easy form If the debt is less than your installment sale basis, none of it is treated as a payment. Irs easy form If it is more, only the difference is treated as a payment. Irs easy form If the buyer assumes more than one debt, any part of the total that is more than your installment sale basis is considered a payment. Irs easy form These rules are the same as the rules discussed earlier under Buyer Assumes Mortgage . Irs easy form However, they apply only to the following types of debt the buyer assumes. Irs easy form Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. Irs easy form Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. Irs easy form If the buyer assumes any other type of debt, such as a personal loan or your legal fees relating to the sale, it is treated as if the buyer had paid off the debt at the time of the sale. Irs easy form The value of the assumed debt is then considered a payment to you in the year of sale. Irs easy form Property Used As a Payment If you receive property other than money from the buyer, it is still considered a payment in the year received. Irs easy form However, see Like-Kind Exchange , later. Irs easy form Generally, the amount of the payment is the property's FMV on the date you receive it. Irs easy form Exception. Irs easy form   If the property the buyer gives you is payable on demand or readily tradable, the amount you should consider as payment in the year received is: The FMV of the property on the date you receive it if you use the cash method of accounting, The face amount of the obligation on the date you receive it if you use the accrual method of accounting, or The stated redemption price at maturity less any original issue discount (OID) or, if there is no OID, the stated redemption price at maturity appropriately discounted to reflect total unstated interest. Irs easy form See Unstated Interest and Original Issue Discount (OID) , later. Irs easy form Debt not payable on demand. Irs easy form   Any evidence of debt you receive from the buyer not payable on demand is not considered a payment. Irs easy form This is true even if the debt is guaranteed by a third party, including a government agency. Irs easy form Fair market value (FMV). Irs easy form   This is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having a reasonable knowledge of all the necessary facts. Irs easy form Third-party note. Irs easy form   If the property the buyer gives you is a third-party note (or other obligation of a third party), you are considered to have received a payment equal to the note's FMV. Irs easy form Because the FMV of the note is itself a payment on your installment sale, any payments you later receive from the third party are not considered payments on the sale. Irs easy form The excess of the note's face value over its FMV is interest. Irs easy form Exclude this interest in determining the selling price of the property. Irs easy form However, see Exception under Property Used As a Payment, earlier. Irs easy form Example. Irs easy form You sold real estate in an installment sale. Irs easy form As part of the down payment, the buyer assigned to you a $50,000, 8% interest third-party note. Irs easy form The FMV of the third-party note at the time of the sale was $30,000. Irs easy form This amount, not $50,000, is a payment to you in the year of sale. Irs easy form The third-party note had an FMV equal to 60% of its face value ($30,000 ÷ $50,000), so 60% of each principal payment you receive on this note is a nontaxable return of capital. Irs easy form The remaining 40% is interest taxed as ordinary income. Irs easy form Bond. Irs easy form   A bond or other evidence of debt you receive from the buyer that is payable on demand or readily tradable in an established securities market is treated as a payment in the year you receive it. Irs easy form For more information on the amount you should treat as a payment, see Exception under Property Used As a Payment, earlier. Irs easy form    If you receive a government or corporate bond for a sale before October 22, 2004, and the bond has interest coupons attached or can be readily traded in an established securities market, you are considered to have received payment equal to the bond's FMV. Irs easy form However, see Exception under Property Used As a Payment, earlier. Irs easy form Buyer's note. Irs easy form   The buyer's note (unless payable on demand) is not considered payment on the sale. Irs easy form However, its full face value is included when figuring the selling price and the contract price. Irs easy form Payments you receive on the note are used to figure your gain in the year received. Irs easy form Installment Obligation Used as Security (Pledge Rule) If you use an installment obligation to secure any debt, the net proceeds from the debt may be treated as a payment on the installment obligation. Irs easy form This is known as the pledge rule, and it applies if the selling price of the property is over $150,000. Irs easy form It does not apply to the following dispositions. Irs easy form Sales of property used or produced in farming. Irs easy form Sales of personal-use property. Irs easy form Qualifying sales of time-shares and residential lots. Irs easy form The net debt proceeds are the gross debt minus the direct expenses of getting the debt. Irs easy form The amount treated as a payment is considered received on the later of the following dates. Irs easy form The date the debt becomes secured. Irs easy form The date you receive the debt proceeds. Irs easy form A debt is secured by an installment obligation to the extent that payment of principal or interest on the debt is directly secured (under the terms of the loan or any underlying arrangement) by any interest in the installment obligation. Irs easy form For sales after December 16, 1999, payment on a debt is treated as directly secured by an interest in an installment obligation to the extent an arrangement allows you to satisfy all or part of the debt with the installment obligation. Irs easy form Limit. Irs easy form   The net debt proceeds treated as a payment on the pledged installment obligation cannot be more than the excess of item (1) over item (2), below. Irs easy form The total contract price on the installment sale. Irs easy form Any payments received on the installment obligation before the date the net debt proceeds are treated as a payment. Irs easy form Installment payments. Irs easy form   The pledge rule accelerates the reporting of the installment obligation payments. Irs easy form Do not report payments received on the obligation after it has been pledged until the payments received exceed the amount reported under the pledge rule. Irs easy form Exception. Irs easy form   The pledge rule does not apply to pledges made after December 17, 1987, to refinance a debt under the following circumstances. Irs easy form The debt was outstanding on December 17, 1987. Irs easy form The debt was secured by that installment sale obligation on that date and at all times thereafter until the refinancing occurred. Irs easy form   A refinancing as a result of the creditor's calling of the debt is treated as a continuation of the original debt so long as a person other than the creditor or a person related to the creditor provides the refinancing. Irs easy form   This exception applies only to refinancing that does not exceed the principal of the original debt immediately before the refinancing. Irs easy form Any excess is treated as a payment on the installment obligation. Irs easy form Escrow Account In some cases, the sales agreement or a later agreement may call for the buyer to establish an irrevocable escrow account from which the remaining installment payments (including interest) are to be made. Irs easy form These sales cannot be reported on the installment method. Irs easy form The buyer's obligation is paid in full when the balance of the purchase price is deposited into the escrow account. Irs easy form When an escrow account is established, you no longer rely on the buyer for the rest of the payments, but on the escrow arrangement. Irs easy form Example. Irs easy form You sell property for $100,000. Irs easy form The sales agreement calls for a down payment of $10,000 and payment of $15,000 in each of the next 6 years to be made from an irrevocable escrow account containing the balance of the purchase price plus interest. Irs easy form You cannot report the sale on the installment method because the full purchase price is considered received in the year of sale. Irs easy form You report the entire gain in the year of sale. Irs easy form Escrow established in a later year. Irs easy form   If you make an installment sale and in a later year an irrevocable escrow account is established to pay the remaining installments plus interest, the amount placed in the escrow account represents payment of the balance of the installment obligation. Irs easy form Substantial restriction. Irs easy form   If an escrow arrangement imposes a substantial restriction on your right to receive the sale proceeds, the sale can be reported on the installment method, provided it otherwise qualifies. Irs easy form For an escrow arrangement to impose a substantial restriction, it must serve a bona fide purpose of the buyer, that is, a real and definite restriction placed on the seller or a specific economic benefit conferred on the buyer. Irs easy form Depreciation Recapture Income If you sell property for which you claimed or could have claimed a depreciation deduction, you must report any depreciation recapture income in the year of sale, whether or not an installment payment was received that year. Irs easy form Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. Irs easy form Report the recapture income in Part II of Form 4797 as ordinary income in the year of sale. Irs easy form The recapture income is also included in Part I of Form 6252. Irs easy form However, the gain equal to the recapture income is reported in full in the year of the sale. Irs easy form Only the gain greater than the recapture income is reported on the installment method. Irs easy form For more information on depreciation recapture, see chapter 3 in Publication 544. Irs easy form The recapture income reported in the year of sale is included in your installment sale basis in determining your gross profit on the installment sale. Irs easy form Determining gross profit is discussed under General Rules , earlier. Irs easy form Sale to a Related Person If you sell depreciable property to a related person and the sale is an installment sale, you may not be able to report the sale using the installment method. Irs easy form If you sell property to a related person and the related person disposes of the property before you receive all payments with respect to the sale, you may have to treat the amount realized by the related person as received by you when the related person disposes of the property. Irs easy form These rules are explained under Sale of Depreciable Property and under Sale and Later Disposition , later. Irs easy form Sale of Depreciable Property If you sell depreciable property to certain related persons, you generally cannot report the sale using the installment method. Irs easy form Instead, all payments to be received are considered received in the year of sale. Irs easy form However, see Exception , below. Irs easy form Depreciable property for this rule is any property the purchaser can depreciate. Irs easy form Payments to be received include the total of all noncontingent payments and the FMV of any payments contingent as to amount. Irs easy form In the case of contingent payments for which the FMV cannot be reasonably determined, your basis in the property is recovered proportionately. Irs easy form The purchaser cannot increase the basis of the property acquired in the sale before the seller includes a like amount in income. Irs easy form Exception. Irs easy form   You can use the installment method to report a sale of depreciable property to a related person if no significant tax deferral benefit will be derived from the sale. Irs easy form You must show to the satisfaction of the IRS that avoidance of federal income tax was not one of the principal purposes of the sale. Irs easy form Related person. Irs easy form   Related persons include the following. Irs easy form A person and all controlled entities with respect to that person. Irs easy form A taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless that beneficiary's interest in the trust is a remote contingent interest. Irs easy form Except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of that estate. Irs easy form Two or more partnerships in which the same person owns, directly or indirectly, more than 50% of the capital interests or the profits interests. Irs easy form   For information about which entities are controlled entities, see section 1239(c). Irs easy form Sale and Later Disposition Generally, a special rule applies if you sell or exchange property to a related person on the installment method (first disposition) who then sells, exchanges, or gives away the property (second disposition) under the following circumstances. Irs easy form The related person makes the second disposition before making all payments on the first disposition. Irs easy form The related person disposes of the property within 2 years of the first disposition. Irs easy form This rule does not apply if the property involved is marketable securities. Irs easy form Under this rule, you treat part or all of the amount the related person realizes (or the FMV if the disposed property is not sold or exchanged) from the second disposition as if you received it at the time of the second disposition. Irs easy form See Exception , later. Irs easy form Related person. Irs easy form   Related persons include the following. Irs easy form Members of a family, including only brothers and sisters (either whole or half), husband and wife, ancestors, and lineal descendants. Irs easy form A partnership or estate and a partner or beneficiary. Irs easy form A trust (other than a section 401(a) employees trust) and a beneficiary. Irs easy form A trust and an owner of the trust. Irs easy form Two corporations that are members of the same controlled group as defined in section 267(f). Irs easy form The fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. Irs easy form A tax-exempt educational or charitable organization and a person (if an individual, including members of the individual's family) who directly or indirectly controls such an organization. Irs easy form An individual and a corporation when the individual owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. Irs easy form A fiduciary of a trust and a corporation when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. Irs easy form The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Irs easy form Any two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Irs easy form An S corporation and a corporation that is not an S corporation if the same persons own more than 50% in value of the outstanding stock of each corporation. Irs easy form A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. Irs easy form An executor and a beneficiary of an estate unless the sale is in satisfaction of a pecuniary bequest. Irs easy form Example 1. Irs easy form In 2012, Harvey Green sold farm land to his son Bob for $500,000, which was to be paid in five equal payments over 5 years, plus adequate stated interest on the balance due. Irs easy form His installment sale basis for the farm land was $250,000 and the property was not subject to any outstanding liens or mortgages. Irs easy form His gross profit percentage is 50% (gross profit of $250,000 ÷ contract price of $500,000). Irs easy form He received $100,000 in 2012 and included $50,000 in income for that year ($100,000 × 0. Irs easy form 50). Irs easy form Bob made no improvements to the property and sold it to Alfalfa Inc. Irs easy form , in 2013 for $600,000 after making the payment for that year. Irs easy form The amount realized from the second disposition is $600,000. Irs easy form Harvey figures his installment sale income for 2013 as follows: Lesser of: 1) Amount realized on second disposition, or 2) Contract price on first disposition $500,000 Subtract: Sum of payments from Bob in 2012 and 2013 - 200,000 Amount treated as received because of second disposition $300,000 Add: Payment from Bob in 2013 + 100,000 Total payments received and treated as received for 2013 $400,000 Multiply by gross profit % × . Irs easy form 50 Installment sale income for 2013 $200,000 Harvey will not include in his installment sale income any principal payments he receives on the installment obligation for 2014, 2015, and 2016 because he has already reported the total payments of $500,000 from the first disposition ($100,000 in 2012 and $400,000 in 2013). Irs easy form Example 2. Irs easy form Assume the facts are the same as Example 1 except that Bob sells the property for only $400,000. Irs easy form The gain for 2013 is figured as follows: Lesser of: 1) Amount realized on second disposition, or 2) Contract price on first disposition $400,000 Subtract: Sum of payments from Bob in 2012 and 2013 − 200,000 Amount treated as received because of second disposition $200,000 Add: Payment from Bob in 2013 + 100,000 Total payments received and treated as received for 2013 $300,000 Multiply by gross profit % × . Irs easy form 50 Installment sale income for 2013 $150,000     Harvey receives a $100,000 payment in 2014 and another in 2015. Irs easy form They are not taxed because he treated the $200,000 from the disposition in 2013 as a payment received and paid tax on the installment sale income. Irs easy form In 2016, he receives the final $100,000 payment. Irs easy form He figures the installment sale income he must recognize in 2016 as follows: Total payments from the first disposition received by the end of 2016 $500,000 Minus the sum of:     Payment from 2012 $100,000   Payment from 2013 100,000   Amount treated as received in 2013 200,000   Total on which gain was previously recognized  − 400,000 Payment on which gain is recognized for 2016  $100,000 Multiply by gross profit % × . Irs easy form 50 Installment sale income for 2016 $ 50,000 Exception. Irs easy form   This rule does not apply to a second disposition, and any later transfer, if you can show to the satisfaction of the IRS that neither the first disposition (to the related person) nor the second disposition had as one of its principal purposes the avoidance of federal income tax. Irs easy form Generally, an involuntary second disposition will qualify under the nontax avoidance exception, such as when a creditor of the related person forecloses on the property or the related person declares bankruptcy. Irs easy form   The nontax avoidance exception also applies to a second disposition that is also an installment sale if the terms of payment under the installment resale are substantially equal to or longer than those for the first installment sale. Irs easy form However, the exception does not apply if the resale terms permit significant deferral of recognition of gain from the first sale. Irs easy form   In addition, any sale or exchange of stock to the issuing corporation is not treated as a first disposition. Irs easy form An involuntary conversion is not treated as a second disposition if the first disposition occurred before the threat of conversion. Irs easy form A transfer after the death of the person making the first disposition or the related person's death, whichever is earlier, is not treated as a second disposition. Irs easy form Like-Kind Exchange If you trade business or investment property solely for the same kind of property to be held as business or investment property, you can postpone reporting the gain. Irs easy form These trades are known as like-kind exchanges. Irs easy form The property you receive in a like-kind exchange is treated as if it were a continuation of the property you gave up. Irs easy form You do not have to report any part of your gain if you receive only like-kind property. Irs easy form However, if you also receive money or other property (boot) in the exchange, you must report your gain to the extent of the money and the FMV of the other property received. Irs easy form For more information on like-kind exchanges, see Like-Kind Exchanges in chapter 1 of Publication 544. Irs easy form Installment payments. Irs easy form   If, in addition to like-kind property, you receive an installment obligation in the exchange, the following rules apply to determine the installment sale income each year. Irs easy form The contract price is reduced by the FMV of the like-kind property received in the trade. Irs easy form The gross profit is reduced by any gain on the trade that can be postponed. Irs easy form Like-kind property received in the trade is not considered payment on the installment obligation. Irs easy form Example. Irs easy form In 2013, George Brown trades personal property with an installment sale basis of $400,000 for like-kind property having an FMV of $200,000. Irs easy form He also receives an installment note for $800,000 in the trade. Irs easy form Under the terms of the note, he is to receive $100,000 (plus interest) in 2014 and the balance of $700,000 (plus interest) in 2015. Irs easy form George's selling price is $1,000,000 ($800,000 installment note + $200,000 FMV of like-kind property received). Irs easy form His gross profit is $600,000 ($1,000,000 − $400,000 installment sale basis). Irs easy form The contract price is $800,000 ($1,000,000 − $200,000). Irs easy form The gross profit percentage is 75% ($600,000 ÷ $800,000). Irs easy form He reports no gain in 2013 because the like-kind property he receives is not treated as a payment for figuring gain. Irs easy form He reports $75,000 gain for 2014 (75% of $100,000 payment received) and $525,000 gain for 2015 (75% of $700,000 payment received). Irs easy form Deferred exchanges. Irs easy form   A deferred exchange is one in which you transfer property you use in business or hold for investment and receive like-kind property later that you will use in business or hold for investment. Irs easy form Under this type of exchange, the person receiving your property may be required to place funds in an escrow account or trust. Irs easy form If certain rules are met, these funds will not be considered a payment until you have the right to receive the funds or, if earlier, the end of the exchange period. Irs easy form See Regulations section 1. Irs easy form 1031(k)-1(j)(2) for these rules. Irs easy form Contingent Payment Sale A contingent payment sale is one in which the total selling price cannot be determined by the end of the tax year of sale. Irs easy form This happens, for example, if you sell your business and the selling price includes a percentage of its profits in future years. Irs easy form If the selling price cannot be determined by the end of the tax year, you must use different rules to figure the contract price and the gross profit percentage than those you use for an installment sale with a fixed selling price. Irs easy form For rules on using the installment method for a contingent payment sale, see Regulations section 15a. Irs easy form 453-1(c). Irs easy form Single Sale of Several Assets If you sell different types of assets in a single sale, you must identify each asset to determine whether you can use the installment method to report the sale of that asset. Irs easy form You also have to allocate part of the selling price to each asset. Irs easy form If you sell assets that constitute a trade or business, see Sale of a Business , later. Irs easy form Unless an allocation of the selling price has been agreed to by both parties in an arm's-length transaction, you must allocate the selling price to an asset based on its FMV. Irs easy form If the buyer assumes a debt, or takes the property subject to a debt, you must reduce the FMV of the property by the debt. Irs easy form This becomes the net FMV. Irs easy form A sale of separate and unrelated assets of the same type under a single contract is reported as one transaction for the installment method. Irs easy form However, if an asset is sold at a loss, its disposition cannot be reported on the installment method. Irs easy form It must be reported separately. Irs easy form The remaining assets sold at a gain are reported together. Irs easy form Example. Irs easy form You sold three separate and unrelated parcels of real property (A, B, and C) under a single contract calling for a total selling price of $130,000. Irs easy form The total selling price consisted of a cash payment of $20,000, the buyer's assumption of a $30,000 mortgage on parcel B, and an installment obligation of $80,000 payable in eight annual installments, plus interest at 8% a year. Irs easy form Your installment sale basis for each parcel was $15,000. Irs easy form Your net gain was $85,000 ($130,000 − $45,000). Irs easy form You report the gain on the installment method. Irs easy form The sales contract did not allocate the selling price or the cash payment received in the year of sale among the individual parcels. Irs easy form The FMV of parcels A, B, and C were $60,000, $60,000, and $10,000, respectively. Irs easy form The installment sale basis for parcel C was more than its FMV, so it was sold at a loss and must be treated separately. Irs easy form You must allocate the total selling price and the amounts received in the year of sale between parcel C and the remaining parcels. Irs easy form Of the total $130,000 selling price, you must allocate $120,000 to parcels A and B together and $10,000 to parcel C. Irs easy form You should allocate the cash payment of $20,000 received in the year of sale and the note receivable on the basis of their proportionate net FMV. Irs easy form The allocation is figured as follows:   Parcels   A and B Parcel C FMV $120,000 $10,000 Minus: Mortgage assumed 30,000 -0- Net FMV $ 90,000 $10,000 Proportionate net FMV:     Percentage of total 90% 10% Payments in year of sale:     $20,000 × 90% $18,000   $20,000 × 10%   $2,000 Excess of parcel B mortgage over installment sale basis 15,000 -0- Allocation of payments  received (or considered  received) in year of sale $ 33,000 $ 2,000 You cannot report the sale of parcel C on the installment method because the sale results in a loss. Irs easy form You report this loss of $5,000 ($10,000 selling price − $15,000 installment sale basis) in the year of sale. Irs easy form However, if parcel C was held for personal use, the loss is not deductible. Irs easy form You allocate the installment obligation of $80,000 to the properties sold based on their proportionate net FMVs (90% to parcels A and B, 10% to parcel C). Irs easy form Sale of a Business The installment sale of an entire business for one overall price under a single contract is not the sale of a single asset. Irs easy form Allocation of Selling Price To determine whether any of the gain on the sale of the business can be reported on the installment method, you must allocate the total selling price and the payments received in the year of sale between each of the following classes of assets. Irs easy form Assets sold at a loss. Irs easy form Real and personal property eligible for the installment method. Irs easy form Real and personal property ineligible for the installment method, including: Inventory, Dealer property, and Stocks and securities. Irs easy form Inventory. Irs easy form   The sale of inventories of personal property cannot be reported on the installment method. Irs easy form All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. Irs easy form   If inventory items are included in an installment sale, you may have an agreement stating which payments are for inventory and which are for the other assets being sold. Irs easy form If you do not, each payment must be allocated between the inventory and the other assets sold. Irs easy form   Report the amount you receive (or will receive) on the sale of inventory items as ordinary business income. Irs easy form Use your basis in the inventory to figure the cost of goods sold. Irs easy form Deduct the part of the selling expenses allocated to inventory as an ordinary business expense. Irs easy form Residual method. Irs easy form   Except for assets exchanged under the like-kind exchange rules, both the buyer and seller of a business must use the residual method to allocate the sale price to each business asset sold. Irs easy form This method determines gain or loss from the transfer of each asset and the buyer's basis in the assets. Irs easy form   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. Irs easy form This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b). Irs easy form   A group of assets constitutes a trade or business if goodwill or going concern value could, under any circumstances, attach to the assets or if the use of the assets would constitute an active trade or business under section 355. Irs easy form   The residual method provides for the consideration to be reduced first by cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). Irs easy form The consideration remaining after this reduction must be allocated among the various business assets in a certain order. Irs easy form   For asset acquisitions occurring after March 15, 2001, make the allocation among the following assets in proportion to (but not more than) their fair market value on the purchase date in the following order. Irs easy form Certificates of deposit, U. Irs easy form S. Irs easy form Government securities, foreign currency, and actively traded personal property, including stock and securities. Irs easy form Accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. Irs easy form However, see Regulations section 1. Irs easy form 338-6(b)(2)(iii) for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. Irs easy form Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. Irs easy form All other assets except section 197 intangibles. Irs easy form Section 197 intangibles except goodwill and going concern value. Irs easy form Goodwill and going concern value (whether or not they qualify as section 197 intangibles). Irs easy form   If an asset described in (1) through (6) is includible in more than one category, include it in the lower number category. Irs easy form For example, if an asset is described in both (4) and (6), include it in (4). Irs easy form Agreement. Irs easy form   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. Irs easy form This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Irs easy form Reporting requirement. Irs easy form   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Irs easy form Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. Irs easy form The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Irs easy form Sale of Partnership Interest A partner who sells a partnership interest at a gain may be able to report the sale on the installment method. Irs easy form The sale of a partnership interest is treated as the sale of a single capital asset. Irs easy form The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary income. Irs easy form (The term “unrealized receivables” includes depreciation recapture income, discussed earlier. Irs easy form ) The gain allocated to the unrealized receivables and the inventory cannot be reported under the installment method. Irs easy form The gain allocated to the other assets can be reported under the installment method. Irs easy form For more information on the treatment of unrealized receivables and inventory, see Publication 541. Irs easy form Example — Sale of a Business On June 4, 2013, you sold the machine shop you had operated since 2005. Irs easy form You received a $100,000 down payment and the buyer's note for $120,000. Irs easy form The note payments are $15,000 each, plus 10% interest, due every July 1 and January 1, beginning in 2014. Irs easy form The total selling price is $220,000. Irs easy form Your selling expenses are $11,000. Irs easy form The selling expenses are divided among all the assets sold, including inventory. Irs easy form Your selling expense for each asset is 5% of the asset's selling price ($11,000 selling expense ÷ $220,000 total selling price). Irs easy form The FMV, adjusted basis, and depreciation claimed on each asset sold are as follows:     Depre- ciation Adj. Irs easy form Asset FMV Claimed Basis Inventory $ 10,000 -0- $ 8,000 Land 42,000 -0- 15,000 Building 48,000 $9,000 36,000 Machine A 71,000 27,200 63,800 Machine B 24,000 12,960 22,040 Truck 6,500 18,624 5,376   $201,500 $67,784 $150,216         Under the residual method, you allocate the selling price to each of the assets based on their FMV ($201,500). Irs easy form The remaining $18,500 ($220,000 - $201,500) is allocated to your section 197 intangible, goodwill. Irs easy form The assets included in the sale, their selling prices based on their FMVs, the selling expense allocated to each asset, the adjusted basis, and the gain for each asset are shown in the following chart. Irs easy form   Sale  Price Sale   Exp. Irs easy form Adj. Irs easy form   Basis Gain Inventory $ 10,000 $ 500 $ 8,000 $ 1,500 Land 42,000 2,100 15,000 24,900 Building 48,000 2,400 36,000 9,600 Mch. Irs easy form A 71,000 3,550 63,800 3,650 Mch. Irs easy form B 24,000 1,200 22,040 760 Truck 6,500 325 5,376 799 Goodwill 18,500 925 -0- 17,575   $220,000 $11,000 $150,216 $58,784 The building was acquired in 2005, the year the business began, and it is section 1250 property. Irs easy form There is no depreciation recapture income because the building was depreciated using the straight line method. Irs easy form All gain on the truck, machine A, and machine B is depreciation recapture income since it is the lesser of the depreciation claimed or the gain on the sale. Irs easy form Figure depreciation recapture in Part III of Form 4797. Irs easy form The total depreciation recapture income reported in Part II of Form 4797 is $5,209. Irs easy form This consists of $3,650 on machine A, $799 on the truck, and $760 on machine B (the gain on each item because it was less than the depreciation claimed). Irs easy form These gains are reported in full in the year of sale and are not included in the installment sale computation. Irs easy form Of the $220,000 total selling price, the $10,000 for inventory assets cannot be reported using the installment method. Irs easy form The selling prices of the truck and machines are also removed from the total selling price because gain on these items is reported in full in the year of sale. Irs easy form The selling price equals the contract price for the installment sale ($108,500). Irs easy form The assets included in the installment sale, their selling price, and their installment sale bases are shown in the following chart. Irs easy form   Selling  Price Install- ment  Sale  Basis Gross  Profit Land $ 42,000 $17,100 $24,900 Building 48,000 38,400 9,600 Goodwill 18,500 925 17,575 Total $108,500 $56,425 $52,075         The gross profit percentage (gross profit ÷ contract price) for the installment sale is 48% ($52,075 ÷ $108,500). Irs easy form The gross profit percentage for each asset is figured as follows: Percentage Land— $24,900 ÷ $108,500 22. Irs easy form 95 Building— $9,600 ÷ $108,500 8. Irs easy form 85 Goodwill— $17,575 ÷ $108,500 16. Irs easy form 20 Total 48. Irs easy form 00 The sale includes assets sold on the installment method and assets for which the gain is reported in full in the year of sale, so payments must be allocated between the installment part of the sale and the part reported in the year of sale. Irs easy form The selling price for the installment sale is $108,500. Irs easy form This is 49. Irs easy form 3% of the total selling price of $220,000 ($108,500 ÷ $220,000). Irs easy form The selling price of assets not reported on the installment method is $111,500. Irs easy form This is 50. Irs easy form 7% ($111,500 ÷ $220,000) of the total selling price. Irs easy form Multiply principal payments by 49. Irs easy form 3% to determine the part of the payment for the installment sale. Irs easy form The balance, 50. Irs easy form 7%, is for the part reported in the year of the sale. Irs easy form The gain on the sale of the inventory, machines, and truck is reported in full in the year of sale. Irs easy form When you receive principal payments in later years, no part of the payment for the sale of these assets is included in gross income. Irs easy form Only the part for the installment sale (49. Irs easy form 3%) is used in the installment sale computation. Irs easy form The only payment received in 2013 is the down payment of $100,000. Irs easy form The part of the payment for the installment sale is $49,300 ($100,000 × 49. Irs easy form 3%). Irs easy form This amount is used in the installment sale computation. Irs easy form Installment income for 2013. Irs easy form   Your installment income for each asset is the gross profit percentage for that asset times $49,300, the installment income received in 2013. Irs easy form Income Land—22. Irs easy form 95% of $49,300 $11,314 Building—8. Irs easy form 85% of $49,300 4,363 Goodwill—16. Irs easy form 2% of $49,300 7,987 Total installment income for 2013 $23,664 Installment income after 2013. Irs easy form   You figure installment income for years after 2013 by applying the same gross profit percentages to 49. Irs easy form 3% of the total payments you receive on the buyer's note during the year. Irs easy form Unstated Interest and Original Issue Discount (OID) An installment sale contract may provide that each deferred payment on the sale will include interest or that there will be an interest payment in addition to the principal payment. Irs easy form Interest provided in the contract is called stated interest. Irs easy form If an installment sale contract does not provide for adequate stated interest, part of the stated principal amount of the contract may be recharacterized as interest. Irs easy form If section 483 applies to the contract, this interest is called unstated interest. Irs easy form If section 1274 applies to the contract, this interest is called original issue discount (OID). Irs easy form An installment sale contract does not provide for adequate stated interest if the stated interest rate is lower than the test rate (defined later). Irs easy form Treatment of unstated interest and OID. Irs easy form   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. Irs easy form As a result, the buyer cannot deduct the unstated interest. Irs easy form The seller must report the unstated interest as income. Irs easy form   Personal-use property is any property in which substantially all of its use by the buyer is not in connection with a trade or business or an investment activity. Irs easy form   If the debt is subject to the section 483 rules and is also subject to the below-market loan rules, such as a gift loan, compensation-related loan, or corporation-shareholder loan, then both parties are subject to the below-market loan rules rather than the unstated interest rules. Irs easy form Rules for the seller. Irs easy form   If either section 1274 or section 483 applies to the installment sale contract, you must treat part of the installment sale price as interest, even though interest is not called for in the sales agreement. Irs easy form If either section applies, you must reduce the stated selling price of the property and increase your interest income by this unstated interest. Irs easy form   Include the unstated interest in income based on your regular method of accounting. Irs easy form Include OID in income over the term of the contract. Irs easy form   The OID includible in income each year is based on the constant yield method described in section 1272. Irs easy form (In some cases, the OID on an installment sale contract also may include all or part of the stated interest, especially if the stated interest is not paid at least annually. Irs easy form )   If you do not use the installment method to report the sale, report the entire gain under your method of accounting in the year of sale. Irs easy form Reduce the selling price by any stated principal treated as interest to determine the gain. Irs easy form   Report unstated interest or OID on your tax return, in addition to stated interest. Irs easy form Rules for the buyer. Irs easy form   Any part of the stated selling price of an installment sale contract treated by the buyer as interest reduces the buyer's basis in the property and increases the buyer's interest expense. Irs easy form These rules do not apply to personal-use property (for example, property not used in a trade or business). Irs easy form Adequate stated interest. Irs easy form   An installment sale contract generally provides for adequate stated interest if the contract's stated principal amount is at least equal to the sum of the present values of all principal and interest payments called for under the contract. Irs easy form The present value of a payment is determined based on the test rate of interest, defined next. Irs easy form (If section 483 applies to the contract, payments due within six months after the sale are taken into account at face value. Irs easy form ) In general, an installment sale contract provides for adequate stated interest if the stated interest rate (based on an appropriate compounding period) is at least equal to the test rate of interest. Irs easy form Test rate of interest. Irs easy form   The test rate of interest for a contract is the 3-month rate. Irs easy form The 3-month rate is the lower of the following applicable federal rates (AFRs). Irs easy form The lowest AFR (based on the appropriate compounding period) in effect during the 3-month period ending with the first month in which there is a binding written contract that substantially provides the terms under which the sale or exchange is ultimately completed. Irs easy form The lowest AFR (based on the appropriate compounding period) in effect during the 3-month period ending with the month in which the sale or exchange occurs. Irs easy form Applicable federal rate (AFR). Irs easy form   The AFR depends on the month the binding
Print - Click this link to Print this page

Can I Deduct My Mortgage Related Expenses?

This application will determine if you are able to deduct amounts you paid for Mortgage interest, Points, Mortgage Insurance Premiums and other Mortgage Related Expenses.

Information You Will Need:

  • Your and your spouse's filing status
  • Basic income information including amounts of your income
  • An estimated total (if applicable) of the amounts paid for mortgage interest, points and/or mortgage insurance premiums (normally reported to you on Form 1099-G)

Estimated Completion Time: 12 minutes. However: 5 minutes of inactivity will end the interview and you will be forced to start over.

Begin

Page Last Reviewed or Updated: 14-Feb-2014

The Irs Easy Form

Irs easy form Publication 541 - Introductory Material Table of Contents Reminder IntroductionTax questions. Irs easy form Ordering forms and publications. Irs easy form Useful Items - You may want to see: Reminder Photographs of missing children. Irs easy form  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Irs easy form Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Irs easy form You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Irs easy form Introduction This publication provides supplemental federal income tax information for partnerships and partners. Irs easy form It supplements the information provided in the Instructions for Form 1065, U. Irs easy form S. Irs easy form Return of Partnership Income, and the Partner's Instructions for Schedule K-1 (Form 1065). Irs easy form Generally, a partnership does not pay tax on its income but “passes through” any profits or losses to its partners. Irs easy form Partners must include partnership items on their tax returns. Irs easy form For a discussion of business expenses a partnership can deduct, see Publication 535, Business Expenses. Irs easy form Members of oil and gas partnerships should read about the deduction for depletion in chapter 9 of that publication. Irs easy form Certain partnerships must have a tax matters partner (TMP) who is also a general partner. Irs easy form For information on the rules for designating a TMP, see Designation of Tax Matters Partner (TMP) in the Form 1065 instructions and section 301. Irs easy form 6231(a)(7)-1 of the regulations. Irs easy form Many rules in this publication do not apply to partnerships that file Form 1065-B, U. Irs easy form S. Irs easy form Return of Income for Electing Large Partnerships. Irs easy form For the rules that apply to these partnerships, see the instructions for Form 1065-B. Irs easy form However, the partners of electing large partnerships can use the rules in this publication except as otherwise noted. Irs easy form Withholding on foreign partner or firm. Irs easy form   If a partnership acquires a U. Irs easy form S. Irs easy form real property interest from a foreign person or firm, the partnership may have to withhold tax on the amount it pays for the property (including cash, the fair market value of other property, and any assumed liability). Irs easy form If a partnership has income effectively connected with a trade or business in the United States, it must withhold on the income allocable to its foreign partners. Irs easy form A partnership may have to withhold tax on a foreign partner's distributive share of fixed or determinable income not effectively connected with a U. Irs easy form S. Irs easy form trade or business. Irs easy form A partnership that fails to withhold may be held liable for the tax, applicable penalties, and interest. Irs easy form   For more information, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. Irs easy form Comments and suggestions. Irs easy form   We welcome your comments about this publication and your suggestions for future editions. Irs easy form   You can write to: Internal Revenue Service Tax Forms and Publications  SE:W:CAR:MP:TFP 1111 Constitution Ave. Irs easy form NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Irs easy form Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Irs easy form    You can send us comments from www. Irs easy form irs. Irs easy form gov/formspubs. Irs easy form Click on “More Information” and then on “Comment on Tax Forms and Publications. Irs easy form ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Irs easy form Tax questions. Irs easy form   If you have a tax question, check the information available at IRS. Irs easy form gov or call 1-800-829-4933. Irs easy form We cannot answer tax questions at the address listed above. Irs easy form Ordering forms and publications. Irs easy form    Visit www. Irs easy form irs. Irs easy form gov/formspubs to download forms and publications, call 1-800-829-3676, or write to one of the addresses shown under How To Get Tax Help in the back of this publication. Irs easy form Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 505 Tax Withholding and Estimated Tax 535 Business Expenses 537 Installment Sales 538 Accounting Periods and Methods 544 Sales and Other Dispositions of Assets 551 Basis of Assets 925 Passive Activity and At-Risk Rules 946 How To Depreciate Property See How To Get Tax Help near the end of this publication for information about getting publications and forms. Irs easy form Prev  Up  Next   Home   More Online Publications