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

Tax Forms 2011 Irs

Where Can I File My State Taxes For FreeFree State File TurbotaxAmend Tax Return OnlineAmendment Tax Return FormIrs 1040 Ez1040ez Tax Table 20102011 Irs Form 1040ezH & R Block TaxesState Tax Return FormsTurbotax 2010 FreeWhere To File State TaxesFree Income Tax PreparationFree State Tax E FilingAmend A Tax Return 2010Amend Federal Tax ReturnAmending A Tax Return OnlineH&r Block At Home Deluxe State 2012 DownloadMyfreetaxes De ComHow To File 1040x Amended Return2012taxesAmended Federal Income Tax Return1040 Nr Tax Form2012 Form 10401040 2012 Tax FormIrs 1040x FormHow To Fill Out 1040xHow Can I File My 2012 Tax ReturnWww Myfreetaxes Com Unitedwaymhc540ez FormW2 Ez FormTaxact 2011 Return2012 Tax Return Form 10401042ezExtension FormWww HrblockFiling State Taxes OnlineFile Taxes Online For 2012Irs Tax Return 2011Income Tax Amendment FormTurbotax 2011 Free

Tax Forms 2011 Irs

Tax forms 2011 irs 1. Tax forms 2011 irs   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). Tax forms 2011 irs  You can set up and make contributions to an IRA if you receive taxable compensation. Tax forms 2011 irs Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. Tax forms 2011 irs For more information about IRAs, see Publication 590. Tax forms 2011 irs Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. Tax forms 2011 irs The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. Tax forms 2011 irs Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. Tax forms 2011 irs Many types of educational assistance are tax free if they meet the requirements discussed here. Tax forms 2011 irs Special rules apply to U. Tax forms 2011 irs S. Tax forms 2011 irs citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. Tax forms 2011 irs For information about these rules, see Publication 54, Tax Guide for U. Tax forms 2011 irs S. Tax forms 2011 irs Citizens and Resident Aliens Abroad. Tax forms 2011 irs Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. Tax forms 2011 irs A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Tax forms 2011 irs Amount of scholarship or fellowship. Tax forms 2011 irs   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. Tax forms 2011 irs This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. Tax forms 2011 irs The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. Tax forms 2011 irs Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. Tax forms 2011 irs Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. Tax forms 2011 irs A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. Tax forms 2011 irs (But for exceptions, see Payment for services,later. Tax forms 2011 irs Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. Tax forms 2011 irs Candidate for a degree. Tax forms 2011 irs   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. Tax forms 2011 irs Eligible educational institution. Tax forms 2011 irs   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Tax forms 2011 irs Qualified education expenses. Tax forms 2011 irs   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Tax forms 2011 irs These items must be required of all students in your course of instruction. Tax forms 2011 irs Expenses that do not qualify. Tax forms 2011 irs   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. Tax forms 2011 irs Payment for services. Tax forms 2011 irs   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. Tax forms 2011 irs This applies even if all candidates for a degree must perform the services to receive the degree. Tax forms 2011 irs (See exceptions next. Tax forms 2011 irs ) Exceptions. Tax forms 2011 irs   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Tax forms 2011 irs Example 1. Tax forms 2011 irs You received a scholarship of $2,500. Tax forms 2011 irs The scholarship was not received under either of the exceptions mentioned above. Tax forms 2011 irs As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Tax forms 2011 irs Of the $2,500 scholarship, $1,000 represents payment for teaching. Tax forms 2011 irs The provider of your scholarship gives you a Form W-2 showing $1,000 as income. Tax forms 2011 irs Your qualified education expenses were at least $1,500. Tax forms 2011 irs Assuming that all other conditions are met, $1,500 of your scholarship is tax free. Tax forms 2011 irs The $1,000 you received for teaching is taxable. Tax forms 2011 irs Example 2. Tax forms 2011 irs You are a candidate for a degree at a medical school. Tax forms 2011 irs You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. Tax forms 2011 irs The terms of your scholarship require you to perform future services. Tax forms 2011 irs A substantial penalty applies if you do not comply. Tax forms 2011 irs The entire amount of your grant is taxable as payment for services in the year it is received. Tax forms 2011 irs Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. Tax forms 2011 irs Worksheet 1-1. Tax forms 2011 irs    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. Tax forms 2011 irs    Worksheet 1-1. Tax forms 2011 irs Taxable Scholarship and Fellowship Income 1. Tax forms 2011 irs Enter the total amount of any scholarship or fellowship for 2013. Tax forms 2011 irs See Amount of scholarship or fellowship, earlier. Tax forms 2011 irs 1. Tax forms 2011 irs       If you are a degree candidate at an eligible educational institution, go to line 2. Tax forms 2011 irs If you are not a degree candidate at an eligible educational institution, stop here. Tax forms 2011 irs The entire amount is taxable. Tax forms 2011 irs For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. Tax forms 2011 irs       2. Tax forms 2011 irs Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. Tax forms 2011 irs (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. Tax forms 2011 irs ) 2. Tax forms 2011 irs     3. Tax forms 2011 irs Subtract line 2 from line 1 3. Tax forms 2011 irs     4. Tax forms 2011 irs Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. Tax forms 2011 irs     5. Tax forms 2011 irs Subtract line 4 from line 3 5. Tax forms 2011 irs     6. Tax forms 2011 irs Enter the amount of your qualified education expenses 6. Tax forms 2011 irs     7. Tax forms 2011 irs Enter the smaller of line 5 or line 6. Tax forms 2011 irs This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. Tax forms 2011 irs     8. Tax forms 2011 irs Subtract line 7 from line 5 8. Tax forms 2011 irs     9. Tax forms 2011 irs Taxable part. Tax forms 2011 irs Add lines 2, 4, and 8. Tax forms 2011 irs See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. Tax forms 2011 irs     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. Tax forms 2011 irs You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. Tax forms 2011 irs Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. Tax forms 2011 irs If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. Tax forms 2011 irs If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. Tax forms 2011 irs You must report the taxable amount whether or not you received a Form W-2. Tax forms 2011 irs If you receive an incorrect Form W-2, ask the payer for a corrected one. Tax forms 2011 irs For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. Tax forms 2011 irs How To Report How you report any taxable scholarship or fellowship income depends on which return you file. Tax forms 2011 irs Form 1040EZ. Tax forms 2011 irs   If you file Form 1040EZ, include the taxable amount in the total on line 1. Tax forms 2011 irs If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. Tax forms 2011 irs Form 1040A. Tax forms 2011 irs   If you file Form 1040A, include the taxable amount in the total on line 7. Tax forms 2011 irs If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. Tax forms 2011 irs Form 1040. Tax forms 2011 irs   If you file Form 1040, include the taxable amount in the total on line 7. Tax forms 2011 irs If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. Tax forms 2011 irs Schedule SE (Form 1040). Tax forms 2011 irs   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. Tax forms 2011 irs If your net earnings are $400 or more, you must pay self-employment tax. Tax forms 2011 irs Use Schedule SE, Self-Employment Tax, to figure this tax. Tax forms 2011 irs Form 1040NR. Tax forms 2011 irs   If you file Form 1040NR, report the taxable amount on line 12. Tax forms 2011 irs Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. Tax forms 2011 irs S. Tax forms 2011 irs Source Income Subject to Withholding. Tax forms 2011 irs See the Instructions for Form 1040NR for more information. Tax forms 2011 irs Form 1040NR-EZ. Tax forms 2011 irs   If you file Form 1040NR-EZ, report the taxable amount on line 5. Tax forms 2011 irs Generally, you must report the amount shown in box 2 of Form(s) 1042-S. Tax forms 2011 irs See the Instructions for Form 1040NR-EZ for more information. Tax forms 2011 irs Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. Tax forms 2011 irs Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. Tax forms 2011 irs Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. Tax forms 2011 irs They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. Tax forms 2011 irs Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. Tax forms 2011 irs Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. Tax forms 2011 irs Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. Tax forms 2011 irs Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. Tax forms 2011 irs Do not include these payments as income on your federal tax return. Tax forms 2011 irs If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. Tax forms 2011 irs This applies only to the part of your VA payments that is required to be used for education expenses. Tax forms 2011 irs You may want to visit the Veteran's Administration website at www. Tax forms 2011 irs gibill. Tax forms 2011 irs va. Tax forms 2011 irs gov for specific information about the various VA benefits for education. Tax forms 2011 irs Example. Tax forms 2011 irs You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. Tax forms 2011 irs Neither of these benefits is taxable and you do not report them on your tax return. Tax forms 2011 irs You also want to claim an American opportunity credit on your return. Tax forms 2011 irs You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). Tax forms 2011 irs To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. Tax forms 2011 irs You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. Tax forms 2011 irs Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. Tax forms 2011 irs This is called a “tuition reduction. Tax forms 2011 irs ” You do not have to include a qualified tuition reduction in your income. Tax forms 2011 irs A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. Tax forms 2011 irs You do not have to use the tuition reduction at the eligible educational institution from which you received it. Tax forms 2011 irs In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. Tax forms 2011 irs The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. Tax forms 2011 irs You must include in your income any tuition reduction you receive that is payment for your services. Tax forms 2011 irs Eligible educational institution. Tax forms 2011 irs   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Tax forms 2011 irs Officers, owners, and highly compensated employees. Tax forms 2011 irs   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. Tax forms 2011 irs This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. Tax forms 2011 irs The group must be defined under a reasonable classification set up by the employer. Tax forms 2011 irs The classification must not discriminate in favor of owners, officers, or highly compensated employees. Tax forms 2011 irs Payment for services. Tax forms 2011 irs   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. Tax forms 2011 irs This applies even if all candidates for a degree must perform the services to receive the degree. Tax forms 2011 irs (See below for exceptions. Tax forms 2011 irs ) Exceptions. Tax forms 2011 irs   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Tax forms 2011 irs Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. Tax forms 2011 irs You are an employee of the eligible educational institution. Tax forms 2011 irs You were an employee of the eligible educational institution, but you retired or left on disability. Tax forms 2011 irs You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. Tax forms 2011 irs You are the dependent child or spouse of an individual described in (1) through (3), above. Tax forms 2011 irs Child of deceased parents. Tax forms 2011 irs   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. Tax forms 2011 irs Child of divorced parents. Tax forms 2011 irs   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. Tax forms 2011 irs Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. Tax forms 2011 irs It is provided by an eligible educational institution. Tax forms 2011 irs You are a graduate student who performs teaching or research activities for the educational institution. Tax forms 2011 irs You must include in income any other tuition reductions for graduate education that you receive. Tax forms 2011 irs How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. Tax forms 2011 irs Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Tax forms 2011 irs Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Contact My Local Office in Minnesota

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City Street Address Days/Hours of Service Telephone*
Bloomington 1550 American Blvd. East
Suite 700
Bloomington, MN 55425

Monday-Friday - 8:30 a.m.- 4:30 p.m.
(Closed for lunch 11:30 a.m. - 12:30 p.m.)

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(651) 312-8082 
Duluth  515 W. First St.
Duluth, MN 55802 

Monday-Friday - 8:30 a.m.- 4:30 p.m.
(Closed for lunch 11:30 a.m.-12:30 p.m.)
 

Services Provided

(218) 626-1624 
Mankato  1921 Excel Dr.
Mankato, MN 56001 

Monday-Friday - 8:30 a.m.- 4:30 p.m.
(Closed for lunch 11:30 a.m.-12:30 p.m.)

 

Services Provided

(507) 625-4977 
Minneapolis  250 Marquette Ave.
Minneapolis, MN 55401 

Monday-Friday - 8:30 a.m.- 4:30 p.m.
 

Services Provided

(651) 312-8082 
Rochester  310 South. Broadway
Rochester, MN 55904

Monday-Friday - 8:30 a.m.- 4:30 p.m.
(Closed for lunch 11:30 a.m.-12:30 p.m.)

 

Services Provided

(507) 281-3044 
St. Cloud  3800 8th Street North
St. Cloud, MN 56303 

Monday-Friday - 8:30 a.m.- 4:30 p.m.
(Closed for lunch 11:30 a.m.-12:30 p.m.)
 

Services Provided

(320) 251-9261 
St. Paul  430 North Wabasha Street
St. Paul, MN 55101
(Physical address only) 

Monday-Friday - 8:30 a.m.- 4:30 p.m.

 

Services Provided

(651) 312-8082 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).
 

For information on where to file your tax return please see Where to File Addresses

The Taxpayer Advocate Service: Call (651) 312-7999 in Minneapolis/St. Paul or 1-877-777-4778 elsewhere, or see Publication 1546, The Taxpayer Advocate Service of the IRS.

For further information, see Tax Topic 104

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
U.S. Bank Financial Center 
1550 American Blvd., E. 
Stop 6610 BLM, Suite 705
Bloomington, MN 55425

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The Tax Forms 2011 Irs

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