Instructions For Form Ftb 3805e - Installment Sale Income

Line 12

property disposed of by an individual. The amount treated as a payment

cannot exceed the excess of the total contract price over any payments

Figure the amount of recapture on Schedule D-1, Part III and Part IV. See

received under the contract before the secured debt was obtained.

the instructions for Schedule D-1. Enter the part of the gain from the sale

The pledge rule does not apply to pledges made after December 31, 1989,

of depreciable property recaptured under IRC Sections 1245 and 1250 (as

if the debt is incurred to refinance the principal amount of a debt that

well as IRC Sections 179 and 291).

was outstanding on December 31, 1989, AND was secured by nondealer

Line 15

real property installment obligations on that date and at all times after

If the property described on line 1 was your main home, you may be

that until the refinancing occurred. However, this exception does not

apply to the extent that the principal amount of the debt resulting from

able to exclude part or all of your gain. Get federal Publication 523,

Selling Your Home, for more information.

the refinancing exceeds the principal amount of the refinanced debt

immediately before the refinancing. Also, the pledge rule does not affect

Line 19

refinancing due to the calling of a debt by the creditor as long as the

debt is then refinanced by a person other than this creditor or someone

Enter the gross profit percentage (expressed as a decimal amount)

related to the creditor.

determined for the year of sale even if you did not file form FTB 3805E

for that year.

Interest on Deferred Tax

You must pay interest on the deferred tax from certain installment

Line 25 and Line 36

obligations (The rules generally apply to dispositions of real property

Report on line 25 or line 36 any ordinary income recapture on IRC

and personal property on or after January 1, 1990). The interest applies

Sections 1252, 1254, and 1255 property. This includes recapture for

to any installment obligation arising from the disposition of any property

the year of sale or any remaining recapture from a prior year sale.

under the installment method if both of the following apply:

Also report on these lines any ordinary income recapture remaining

y The property had a sales price over $150,000.

from prior years on IRC Sections 1245 and 1250 property sold

y The aggregate balance of all nondealer installment obligations

before January 1, 1985. Do not enter ordinary income from an IRC

(arising during and outstanding at the close of the taxable year) is

Section 179 deduction. If this is the year of sale, see the instructions for

more than $5 million.

Schedule D-1, Part IV.

Exception: These rules do not apply to dispositions of farm property or

The amount on line 25 and line 36 may not exceed the total of the

to dispositions of personal use property by an individual.

amounts on line 24 and line 35.

You must pay interest on the deferred tax from all installment obligations

Line 26 and Line 37

arising from the disposition of timeshares and residential lots. See IRC

Section 453(l).

Capital Assets. Enter this amount on Schedule D (540 or 540NR), line 1.

You must pay interest in subsequent years if installment obligations,

Trade or Business Property. Enter this amount on Schedule D-1, line 4,

which originally required interest to be paid, are still outstanding at the

if the property was held for more than one year (more than six months

close of a taxable year.

if acquired before January 1, 1988). If the property was held one year

How to Report the Interest – The interest is not figured on form

or less (six months or less if acquired before January 1, 1988), or if

FTB 3805E. See IRC Section 453A or 453(l)(3) to figure the

you have an ordinary gain from a noncapital asset, even if the holding

interest. Substitute the maximum rate of tax imposed under R&TC

period is more than one year, enter the amount on Schedule D-1, line 10,

Section 17041, 23151, 23186, or 23802, whichever applies, for the

column (g), and write “FTB 3805E” to the left of the amount.

maximum rate of tax under IRC Section 1 or 11. Enter the interest as an

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additional tax on your tax return.

If one of the conditions is met, check the appropriate box and skip

Individuals should include the amount on Form 540, line 63 or

line 30 through line 37. If you checked box “e,” attach an explanation.

Long Form 540NR, line 73. Write “IRC Section 453A interest” or “IRC

Generally, the nontax-avoidance condition will apply to the second

Section 453 interest” and the amount on the dotted line to the left of the

disposition if the disposition was either of the following:

amount or include it according to your software’s instructions.

y Involuntary (e.g. a creditor of the related person foreclosed on the

Corporations may deduct the interest in the year it is paid or accrued.

property, or the related person declared bankruptcy).

Individuals and other taxpayers may not deduct this interest.

y An installment sale under which the terms of payment were

Apportioning Corporations

substantially equal to or longer than those for the first sale. However,

If an apportioning corporation reports a sale under the installment

the resale terms must not permit significant deferral of recognition

method, the apportionment factors from the year of sale should be used

of gain from the first sale (e.g. amounts from the resale are being

in subsequent periods when the gains from the installment sale are

collected sooner).

recognized. (See FTB Legal Ruling 413.)

Specific Line Instructions

If partnerships, S corporations, or LLCs elect to expense costs under

IRC Section 179, then the partners, shareholders, or members may not

include the expensed costs on line 9.

Refer to federal Form 6252 for information on how to complete the

following lines:

y Line 5 – Selling price

y Line 6 – Mortgages and other debts

y Line 8 – Cost or other basis of property sold

y Line 9 – Depreciation allowed or allowable

y Line 11 – Commissions and other expenses of sale

y Line 21 – Payments received during the year

y Line 23 – Payments received in prior years

y Line 30 – Selling price of property sold by related party

Page 2 FTB 3805E Instructions 2016

Instructions For Form Ftb 3805e - Installment Sale Income - 2016 Page 2

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