Form 3805e - California Installment Sale Income

2014 Instructions for Form FTB 3805E

Installment Sale Income

References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2009, and to the California Revenue and Taxation Code (R&TC).

General Information

Specific Instructions

In general, for taxable years beginning on or after January 1, 2010,

Complete line 1, through line 4.

California law conforms to the Internal Revenue Code (IRC) as of

Other Parts To Be Completed

January 1, 2009. However, there are continuing differences between

• For the Year of Sale – Complete Part I and Part II. Also, complete

California and federal law. When California conforms to federal tax law

Part III if applicable.

changes, we do not always adopt all of the changes made at the federal

• For Years After the Year of Sale – Complete Part II for any year you

level. For more information, go to ftb.ca.gov and search for conformity.

receive a payment from an installment sale.

Additional information can be found in FTB Pub. 1001, Supplemental

• Related Party Sales – If you sold marketable securities to a related

Guidelines to California Adjustments, the instructions for California

party, complete form FTB 3805E for each year of the installment

Schedule CA (540 or 540NR), and the Business Entity tax booklets.

agreement even if you did not receive a payment. See “Installment

The instructions provided with California tax forms are a summary of

Sales to Related Party,” below for the definition of a related party.

California tax law and are only intended to aid taxpayers in preparing

For any year after the year of sale, complete Part III. If you received a

their state income tax returns. We include information that is most

payment, also complete Part II.

useful to the greatest number of taxpayers in the limited space available.

If you sold property other than marketable securities to a related party,

It is not possible to include all requirements of the California Revenue

complete form FTB 3805E for the year of sale and for two years after the

and Taxation Code (R&TC) in the tax booklets. Taxpayers should not

year of sale even if you did not receive a payment. If during this two-year

consider the tax booklets as authoritative law.

period you did not receive an actual or deemed payment, complete

Beginning January 1, 2002, California taxes installment gains that a

Part III. After this two-year period, see “For Years After the Year of Sale”

nonresident received from the sale of property based on where the

above.

property is sourced (e.g., located). California now taxes a California

Special Rules

resident on installment proceeds received from the sale of property

Interest on Installment Payments – If any part of an installment

sourced outside California that the taxpayer sold before becoming a

payment you received is for interest, be sure to report that interest

California resident. For more information, get FTB Pub. 1100, Taxation of

Nonresidents and Individuals Who Change Residency.

on the appropriate form or schedule. Do not report interest received,

carrying charges received, or unstated interest on this form. Get federal

Registered Domestic Partners (RDP) – For purposes of California

Publication 537, Installment Sales, for details on unstated interest.

income tax, references to a spouse, husband, or wife also refer to a

Installment Sales to Related Party – A special rule applies to a first

California RDP unless otherwise specified. When we use the initials

disposition (sale or exchange) of property under the installment method

RDP they refer to both a California registered domestic “partner” and

to a related party who then makes a second disposition (sale, exchange,

a California registered domestic “partnership,” as applicable. For more

gift, or cancellation of installment note) before making all payments

information on RDPs, get FTB Pub. 737, Tax Information for Registered

on the first disposition. For this purpose, a related party includes your

Domestic Partners.

spouse/RDP, child, grandchild, parent, brother, sister, or a related

corporation, S corporation, partnership, limited liability company (LLC),

Purpose

estate or trust. See IRC Section 453(f)(1) for more information.

Use form FTB 3805E, Installment Sale Income, to report income from

Under this rule, you treat part or all of the amount the related party

casual sales of real or personal property other than inventory if you will

realized, or the fair market value (FMV) if the disposed property is not

receive any payments (including installment payments from sales before

sold or exchanged, from the second disposition as if you received it

1980) in a taxable year after the year of sale.

from the first disposition at the time of the second disposition. Figure

the gain, if any, on line 30 through line 37. This rule does not apply if

Do not use form FTB 3805E to report sales after 1986 of stock or

any of the exceptions listed in Part III, line 29 are met.

securities traded on an established securities market. Treat all payments

from these sales as received in the year you sold the stock.

Sale of Depreciable Property to Related Person – Generally, if

you sell depreciable property to a related person, as defined in IRC

Do not use form FTB 3805E if you elect not to report the sale on the

Section 453(g)(3), you may not report the sale using the installment

installment method. To elect out, report the sale on Schedule D (540 or

method. For this purpose, depreciable property is any property that can

540NR), California Capital Gain or Loss Adjustment, Schedule D (541),

be depreciated by the person or entity to whom you transfer it.

Capital Gain or Loss, Schedule D (100S), S Corporation Capital Gains

and Losses and Built-In Gains, or Schedule D-1, Sales of Business

However, you may use the installment method if you can show to the

Property, whichever applies. See the instructions for Schedule D (540,

satisfaction of the Franchise Tax Board that avoidance of state income

540NR, or 541), Schedule D (100S), or Schedule D-1.

taxes was not one of the principal purposes of the sale. For example, no

significant tax deferral benefit will result from the sale.

Report the ordinary income from sales of property described in IRC

Sections 1245, 1250, 179, and 291 and R&TC Sections 17267.2,

If the installment method does not apply, report the sale on Schedule D

17267.6, 17268, 24356.6, 24356.7, and 24356.8 in full in the year of

(540, 540NR, or 541), Schedule D (100S), or Schedule D-1, whichever

sale even if no payments were received. Figure the ordinary income to

applies. Treat all payments you will receive as if they were received in

be recaptured on Schedule D-1, Part III.

the year of sale. Use the FMV for any payment that is contingent as to

amount. If the FMV cannot be readily determined, basis is recovered

Generally, California law is the same as federal law concerning

ratably.

installment sales. Get the instructions for federal Form 6252, Installment

Pledge Rule – If an installment obligation from a nondealer disposition

Sale Income, for more information on how to calculate your installment

of real property used in a trade or business or held for the production

sale income. You may also refer to IRC Section 453 and R&TC

of rental income with a sales price over $150,000 is pledged as security

Sections 17551, 17560, and 24667.

on debt after December 31, 1989, treat the net proceeds of the secured

debt as a payment on the installment obligation. This rule applies to the

disposition of any property under the installment method after 1989 with

FTB 3805E Instructions 2014 Page 1

Form 3805e - California Installment Sale Income - 2014 Page 2

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