Form 3805e - California Installment Sale Income - 2014 Page 3

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a sales price over $150,000, except for farm property and personal use
• Line 19 – Gross profit percentage
property disposed of by an individual. The amount treated as a payment
• Line 21 – Payments received during the year
cannot exceed the excess of the total contract price over any payments
• Line 23 – Payments received in prior years
received under the contract before the secured debt was obtained.
• Line 30 – Selling price of property sold by related party
The pledge rule does not apply to pledges made after December 31,
Line 12
1989, if the debt is incurred to refinance the principal amount of a
Figure the amount of recapture on Schedule D-1, Part III and Part IV. See
debt that was outstanding on December 31, 1989, AND was secured
the instructions for Schedule D-1. Enter the part of the gain from the sale
by nondealer real property installment obligations on that date and
of depreciable property recaptured under IRC Sections 1245 and 1250
at all times after that until the refinancing occurred. However, this
(as well as IRC Sections 179 and 291) and R&TC Sections 17267.2,
exception does not apply to the extent that the principal amount of the
17267.6, 17268, 24356.6, 24356.7, and 24356.8.
debt resulting from the refinancing exceeds the principal amount of the
Line 15
refinanced debt immediately before the refinancing. Also, the pledge rule
If the property described on line 1 was your main home, you may be
does not affect refinancing due to the calling of a debt by the creditor as
able to exclude part or all of your gain. Get federal Publication 523,
long as the debt is then refinanced by a person other than this creditor
Selling Your Home, for more information.
or someone related to the creditor.
Line 19
Interest on Deferred Tax
Enter the gross profit percentage determined for the year of sale even if
You must pay interest on the deferred tax from certain installment
you did not file form FTB 3805E for that year.
obligations (The rules generally apply to dispositions of real property
and personal property on or after January 1, 1990). The interest applies
Line 25 and Line 36
to any installment obligation arising from the disposition of any property
Report on line 25 or line 36 any ordinary income recapture on IRC
under the installment method if both of the following apply:
Sections 1252, 1254, and 1255 property. This includes recapture for
the year of sale or any remaining recapture from a prior year sale.
• The property had a sales price over $150,000.
Also report on these lines any ordinary income recapture remaining
• The aggregate balance of all nondealer installment obligations
from prior years on IRC Sections 1245 and 1250 property sold
(arising during and outstanding at the close of the taxable year) is
before January 1, 1985. Do not enter ordinary income from an IRC
more than $5 million.
Section 179 deduction. If this is the year of sale, see the instructions for
Exception: These rules do not apply to dispositions of farm property or
Schedule D-1, Part IV.
to dispositions of personal use property by an individual.
The amount on line 25 and line 36 may not exceed the total of the
You must pay interest on the deferred tax from all installment obligations
amounts on line 24 and line 35.
arising from the disposition of timeshares and residential lots. See IRC
Line 26 and Line 37
Section 453(l).
You must pay interest in subsequent years if installment obligations,
Capital Assets. Enter this amount on Schedule D (540 or 540NR),
which originally required interest to be paid, are still outstanding at the
line 1.
close of a taxable year.
Trade or Business Property. Enter this amount on Schedule D-1, line 4,
How to Report the Interest – The interest is not figured on form
if the property was held for more than one year (more than six months
FTB 3805E. See IRC Section 453A or 453(l)(3) to figure the
if acquired before January 1, 1988). If the property was held one year
interest. Substitute the maximum rate of tax imposed under R&TC
or less (six months or less if acquired before January 1, 1988), or if
Section 17041, 23151, 23186, or 23802, whichever applies, for the
you have an ordinary gain from a noncapital asset, even if the holding
maximum rate of tax under IRC Section 1 or 11. Enter the interest as an
period is more than one year, enter the amount on Schedule D-1, line 10,
additional tax on your tax return.
column (g), and write “FTB 3805E” to the left of the amount.
Individuals should include the amount on Form 540, line 48 or
Line 29
Long Form 540NR, line 63. Write “IRC Section 453A interest” or “IRC
If one of the conditions is met, check the appropriate box and skip
Section 453 interest” and the amount on the dotted line to the left of the
line 30 through line 37. If you checked box “e,” attach an explanation.
amount or include it according to your software’s instructions.
Generally, the nontax-avoidance condition will apply to the second
disposition if the disposition was either of the following:
Corporations may deduct the interest in the year it is paid or accrued.
Individuals and other taxpayers may not deduct this interest.
• Involuntary (e.g. a creditor of the related person foreclosed on the
property, or the related person declared bankruptcy).
Apportioning Corporations
If an apportioning corporation reports a sale under the installment
• An installment sale under which the terms of payment were
method, the apportionment factors from the year of sale should be used
substantially equal to or longer than those for the first sale. However,
in subsequent periods when the gains from the installment sale are
the resale terms must not permit significant deferral of recognition
recognized. (See FTB Legal Ruling 413.)
of gain from the first sale (e.g. amounts from the resale are being
collected sooner).
Specific Line Instructions
If partnerships, S corporations, or LLCs elect to expense costs under
R&TC Sections 17267.2, 17267.6, 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, Installment Sale Income, 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
Page 2 FTB 3805E Instructions 2014

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