California Form 3805e Draft - Installment Sale Income

a sales price over $150,000, except for farm property and personal use

Line 12

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

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

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

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

received under the contract before the secured debt was obtained.

of depreciable property recaptured under IRC Sections 1245 and 1250

(as well as IRC Sections 179 and 291) and R&TC Sections 17267.2,

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

17268, 24356.7, and 24356.8.

1989, if the debt is incurred to refinance the principal amount of a

debt that was outstanding on December 31, 1989, AND was secured

Line 15

by nondealer real property installment obligations on that date and

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

at all times after that until the refinancing occurred. However, this

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

exception does not apply to the extent that the principal amount of the

Selling Your Home, for more information.

debt resulting from the refinancing exceeds the principal amount of the

Line 19

refinanced debt immediately before the refinancing. Also, the pledge rule

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

does not affect refinancing due to the calling of a debt by the creditor as

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

long as the debt is then refinanced by a person other than this creditor

for that year.

or someone related to the creditor.

Line 25 and Line 36

Interest on Deferred Tax

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

You must pay interest on the deferred tax from certain installment

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

obligations (The rules generally apply to dispositions of real property

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

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

Also report on these lines any ordinary income recapture remaining

to any installment obligation arising from the disposition of any property

from prior years on IRC Sections 1245 and 1250 property sold

under the installment method if both of the following apply:

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

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

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

• The aggregate balance of all nondealer installment obligations

Schedule D-1, Part IV.

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

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

more than $5 million.

amounts on line 24 and line 35.

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

Line 26 and Line 37

to dispositions of personal use property by an individual.

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

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

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

line 1.

Section 453(l).

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

You must pay interest in subsequent years if installment obligations,

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

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

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

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

close of a taxable year.

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

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

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

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

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

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

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

Line 29

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

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

additional tax on your tax return.

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

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

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

disposition if the disposition was either of the following:

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

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

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

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

property, or the related person declared bankruptcy).

• An installment sale under which the terms of payment were

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

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

Individuals and other taxpayers may not deduct this interest.

the resale terms must not permit significant deferral of recognition

Apportioning Corporations

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

If an apportioning corporation reports a sale under the installment

collected sooner).

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

in subsequent periods when the gains from the installment sale are

recognized. (See FTB Legal Ruling 413.)

Specific Line Instructions

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

R&TC Sections 17267.2, 17268, or 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:

• Line 5 – Selling price

• Line 6 – Mortgages and other debts

• Line 8 – Cost or other basis of property sold

• Line 9 – Depreciation allowed or allowable

• Line 11 – Commissions and other expenses of sale

• Line 21 – Payments received during the year

• Line 23 – Payments received in prior years

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

Page 2 FTB 3805E Instructions 2015

California Form 3805e Draft - Installment Sale Income - 2015 Page 4

Related Articles

Related forms

Related Categories