Note: If showing a loss, be sure to mark over the "X" in the box to the left.

Installment Sales If a sale was treated as an installment sale for U.S. income tax purposes, it may be treated the same way on your Massachusetts income tax return. If you are reporting capital gains on installment sales that occurred between January 1, 1996 through April 30, 2002, you must file Schedule D-IS, Installment Sales. If you are required to file Schedule D-IS, you must include any capital gains or losses otherwise reportable on Schedule D. Also, be sure to enclose U.S. Schedule 6252, Installment Sale Income, for each installment sale.

If you wish to report a sale on your Massachusetts return as an installment sale, you must apply in writing to the Department of Revenue's Installment Sales Unit. The Commissioner of Revenue must approve your application to report the sale on the installment basis in Massachusetts before you file your return, and appropriate security must be posted. An explanatory statement must be enclosed with each return for the life of the installment sale. For further information contact the Installment Sales Unit at 617-887-6950.

If you are reporting an installment sale occurring on or after May 1, 2002, report those gains on Schedule D pdf format of sch_d.pdf .

Tax rates for transactions completed before May 1, 2002 Transactions completed prior to May 1, 2002 must be added together and taxed under the procedures and rates in place prior to the recent amendment to the capital gains law. Under prior law, gains on the sale of capital assets (excluding collectibles) held for more than one year but not more than two years are taxed as 5% income (Schedule D-IS, Part 2, column A), those held for more than two years but not more than three years are taxed as 4% income (Schedule D-IS, Part 2, column B), those held for more than three years but not more than four years are taxed as 3% income (Schedule D-IS, Part 2, column C), those held for more than four years but not more than five years are taxed as 2% income (Schedule D-IS, Part 2, column D), those held for more than five years but not more than six years are taxed as 1% income (Schedule D-IS, Part 2, column E), and those held for more than six years are taxed as 0% income (Schedule D-IS, Part 2, column F).

Tax rate for transactions completed on or after May 1, 2002. In place of the six categories of gain based on six defined holding periods and taxed at six different rates (ranging from 5% down to 0%), legislation provides for a single category of long-term capital gains consisting of any gains from the sale or exchange of capital assets (except collectibles) held for more than one year. Effective for tax years beginning on or after January 1, 2002, the legislation changes the multiple tax rates for long-term capital gains to the single tax rate of 5.3%, but only for transactions completed on or after May 1, 2002 (Schedule D-IS, Part 1).

Schedule D-IS, Part 1. Long-Term Capital Gains and Losses, Excluding Collectibles

Line 1. Long-Term Capital Gains and Losses Enter the gain or loss included in U.S. Schedule D, line 8, column f.

Line 2. Additional Long-Term Capital Gains and Losses Enter the gain or loss included in U.S. Schedule D, line 9, column f.

Line 3. Gain from Sales of Business Property and Other Long-Term Gains and Losses Enter the gain or loss included in U.S. Schedule D, line 11, column f.

Line 4. Net Long-Term Gain or Loss from Partnerships, S Corporations, Estates and Trusts Enter the gain or loss included in U.S. Schedule D, line 12, column f.

Line 5. Capital Gain Distributions If you did not file U.S. Schedule D, enter the capital gain distributions reported to you by a mutual fund or real estate investment trust included in the amount from U.S. Form 1040, line 13a or 1040A, line 10a. If you did file a U.S. Schedule D, enter the capital gain distributions reported to you by a mutual fund or real estate investment trust included in U.S. Schedule D, line 13, column f.

Line 6. Massachusetts Long-Term Capital Gains and Losses Included in U.S. Form 4797, Part II Enter amounts included in U.S. Form 4797, Part II treated as capital gains or losses for Massachusetts purposes (not included in lines 1 through 5 above). These include ordinary gains from the sale of Section 1231 property, recapture amounts under Sections 1245, 1250 and 1255, Section 1244 losses and the loss on the sale, exchange or involuntary conversion of property used in a trade or business.

Line 7. Carryover Losses from Previous Years If you have a carryover loss from a prior year, enter in line 7 the total amount of carryover losses from your 2002 Schedule D, line 25.

Line 8. Subtotal Long-Term Capital Gains and Losses Combine lines 1 through 7 and enter the result in line 8.

Line 9. Differences Enter any differences between the gains or losses reportable for Massachusetts tax purposes and the U.S. gains or losses reported in Massachusetts Schedule D-IS, lines 1 through 7. Differences include: Net gains or losses taxed to a Massachusetts estate or trust. Enter in line 9 only gains or losses of a Massachusetts estate or trust that are taxed directly on the Massachusetts Fiduciary Return, Form 2, if you are the beneficiary and if you included the amounts on Schedule D-IS, line 4. Note: Do not enter gains or losses from any grantor-type trust or from an estate or trust that is not subject to taxation in Massachusetts; Pre-1996 installment sales classified as ordinary income for Massachusetts purposes; Long-term capital gains or losses from transactions reported as installment sales for U.S. income tax purposes but not for Massachusetts; and Massachusetts has adopted basis adjustment rules to take into account differences between Massachusetts and federal tax laws.

Line 10. Adjusted Capital Gains and Losses Exclude/subtract line 9 from line 8 and enter the result in line 10. If line 9 is a loss, add loss as a positive number to the amount recorded in line 8. If in line 9 you entered amounts which increase the amounts reported from U.S. to Massachusetts, for example, a long-term gain reported as installment sales for U.S. tax purposes but not for Massachusetts, add the amount in line 9 to the amount in line 8.

Line 11. Long-Term Gains on Collectibles and Pre-1996 Installment Sales Enter in line 11 the amount of long-term gains on collectibles and pre-1996 installment sales classified as capital gain income for Massachusetts purposes that are included in line 10. Long-term gains on collectibles and pre-1996 installment sales classified as capital gain income for Massachusetts purposes are taxed at the 12% rate and should be entered on Schedule B, line 11. Collectibles are defined as any capital asset that is a collectible within the meaning of Internal Revenue Code section 408(m), as amended and in effect for the taxable year, including works of art, rugs, antiques, metals, gems, stamps, alcoholic beverages, certain coins, and any other items treated as collectibles for federal tax purposes.

Line 12. Long-term capital gain on installment sales from January 1, 1996 through April 30, 2002 Enter in line 12 the amount of long-term gain on installment sales that occurred from January, 1, 1996 through April 30, 2002 that are included in line 10.

Line 13. Subtotal Subtract the total of lines 11 and 12 from line 10 and enter the result in line 13.

If Schedule D-IS, Part 1, line 13 is '"0" or greater, omit Schedule D-IS, Part 1, line 14 and enter the amount from Schedule D-IS, Part 1, line 13 in line 15.

If Schedule D-IS, Part 1, line 13 is a loss and any amount in Schedule D-IS, Part 2, line 1, columns A through F is greater than "0," the 5.3% loss reported on Schedule D-IS, Part 1, line 13 can be applied against net gains within other holding periods reported on Schedule D-IS, Part 2, line 1, columns A through F, beginning with the highest tax rate and applying any remaining loss against the next highest tax rate. For example, a 5.3% loss is first applied to 5% gains, any remaining loss is applied to 4% gains, any remaining loss is applied against 3% gains, any remaining loss is applied against 2% gains, any loss remaining is applied against 1% gains, then any remaining loss is applied against 0% gains. Report such losses in Schedule D-IS, Part 2, line 2, columns A through F. Note: The amount entered in Schedule D-IS, Part 2, line 2, columns A through F, considered as a positive amount, cannot exceed the amount entered in Schedule D-IS, Part 2, line 1, columns A through F.

Line 14. Long-term Capital Losses Applied Against Long-Term Capital Gains Enter as a positive amount the total of long-term capital losses applied against installment sales from Schedule D-IS, Part 2, line 2, columns A through F.

Line 15. Subtotal Combine line 13 and 14. If Schedule D-IS, Part 1, line 15 is a loss and Schedule B, line 21 is "0" or less, omit Schedule D-IS, Part 1, lines 16 through 18, enter the amount from Schedule D-IS, Part 1, line 15 in line 19, omit Schedule D-IS, Part 1, lines 20 through 23 and Schedule D-IS, Part 3, line 24 and include the amount from Schedule D-IS, Part 1, line 19 in Schedule D-IS, Part 3, line 25.

If Schedule D-IS, Part 1, line 15 is a gain and Schedule B, line 21 is a loss, go to Schedule D-IS, Part 1, line 16.

If Schedule D-IS is a loss and Schedule B, line 24 is a positive amount, go to Schedule D-IS, Part 1, line 16.

If Schedule D-IS, Part 1, line 15 is a gain, and Schedule B, line 24 is "0" or greater, omit Schedule D-IS, Part 1, lines 16 through 18 and enter the amount from Schedule D-IS, Part 1, line 15 in Schedule D-IS, line 19.

Line 16. Capital Losses Applied Against Capital Gains If Schedule D-IS, Part 1, line 15 is a positive amount and Schedule B, line 21 is a loss, enter the smaller of Schedule D-IS, Part 1, line 15 or Schedule B, line 21 (considered as a positive amount) in Schedule D-IS, Part 1, line 16 and in Schedule B, line 22.

If Schedule D-IS, Part 1, line 15 is a loss and Schedule B, line 24 is a positive amount, enter the smaller of Schedule D-IS, Part 1, line 15 (considered as a positive amount) or Schedule B, line 24 in Schedule D-IS, Part 1, line 16 and in Schedule B, line 25.

Line 17. Subtotal If line 15 is greater than "0," subtract line 16 from line 15. If line 15 is less than "0," combine lines 15 and 16.

If Schedule D-IS, Part 1, line 17 is a loss and Schedule B, line 24 is "0" or greater and Schedule B, line 31 is a positive amount, go to Schedule D-IS, line 18.

If Schedule D-IS, Part 1, line 17 is a loss, and Schedule B, line 21 is "0" or less, omit Schedule D-IS, Part 1, line 18, enter the amount from Schedule D-IS, Part 1, line 17 in Schedule D-IS, Part 1, line 19, omit Schedule D-IS, Part 1, lines 20 through 23 and Schedule D-IS, Part 3, line 24 and include the amount from Schedule D-IS, Part 1, line 19 in Schedule D-IS, Part 3, line 25.

Line 18. Long-Term Capital Losses Applied Against Interest and Dividends If Schedule D-IS, Part 1, line 17 is a loss, and Schedule B, line 24 is "0" or greater and Schedule B, line 31 is a positive amount, complete a pro-forma version of the Long-Term Capital Losses Applied Against Interest and Dividends Worksheet for Schedule B, Line 32 and Schedule D, Line 15 found in the 2003 Form 1 Instructions Booklet pdf format of form1_inst.pdf on page 23.

Line 19. Subtotal Combine line 17 and line 18. If Schedule D-IS, line 19 is "0," enter "0" in lines 20 through 23 and omit Schedule D-IS, Part 3, lines 24 and 25. If Schedule D-IS, Part 1, line 19 is a loss, omit lines 20 through 23 and Schedule D-IS, Part 3, line 24 and enter the amount from line 19 in Schedule D-IS, Part 3, line 25.

Line 20. Allowable Deductions From Your Trade or Business Generally, taxpayers may not use excess 5.3% trade or business deductions to offset other income. However, where the taxpayer files a Massachusetts Schedule C or Schedule E, Massachusetts law allows such offsets if the following requirements are met: the excess 5.3% deductions must be adjusted gross income deductions allowed under MGL Ch. 62, sec. 2(d); and these excess deductions may only be used to offset other income which is effectively connected with the active conduct of a trade of business or any other income allowed under IRC, sec. 469(d)(1)(B) to offset losses from passive activities. Enclose Schedule C-2 with your return. Enter in line 20 the amount from Schedule C-2, line 14.

Note: This deduction is only allowed for taxpayers filing either Form 1, Form 1-NR/Y or Form 2. Taxpayers filing Forms 3F or 3M are NOT eligible for this deduction.

Line 21. Subtotal Subtract line 20 from line 19 and enter the result in line 21. Not less than "0."

Line 22. Excess Exemptions Complete a pro-forma version of the Excess Exemption Worksheet found in the 2003 Form 1 Instructions Booklet pdf format of form1_inst.pdf on page 12.

Note: This deduction is only allowed for taxpayers filing either Form 1, Form 1-NR/Y or Form 2. Taxpayers filing Forms 3F or 3M are NOT eligible for this deduction.

Form 3F filers should enter, right justified on the return, the apportionment percentage from Schedule E, line 5. If 100%, leave line 22 blank.

Form 2 filers, see "Special Information for Form 2 Filers" section at end of instructions.

Line 23. Taxable Long-Term Capital Gains Subtract line 22 from line 21 and enter the result in line 23. Not less than "0." Also enter this amount on Schedule D-IS, Part 3, line 23A, column 1.

Form 3F filers eligible to apportion, multiply the amount in line 21 by the apportionment percentage entered in line 22 and enter the result here and on Schedule D-IS, Part 3, line 23A, column 1. If apportionment percentage from Schedule E, line 5 is 100%, enter in line 23 the amount from line 21.

Schedule D-IS, Part 2. Long-Term Capital Gains and Losses On Installment Sales from January 1, 1996 Through April 30, 2002

Line 1 Long-Term Capital Gains and Losses Enter in column A the gain from the installment sale of assets held more than one year but not more than two years occurring from January,1, 1996 through April 30, 2002. Enter in column B the gain from the installment sale of assets held more than two years but not more than three years occurring from January 1, 1996 through April 30, 2002. Enter in column C the gain from the installment sale of assets held more than three years but not more than four years occurring from January 1, 1996 through April 30, 2002. Enter in column D the gain from the installment sale of assets held more than four years but not more than five years occurring from January 1, 1996 through April 30, 2002. Enter in column E the gain from the installment sale of assets held more than five years but not more than six years occurring from January 1, 1996 through April 30, 2002. Enter in column F the gain from the installment sale of assets held more than six years occurring from January 1, 1996 through April 30, 2002.

Line 2. Long-Term Capital Losses Applied Against Long-Term Installment Sales If Schedule D-IS, Part 1, line 13 is a loss and any amount in Schedule D-IS, Part 2, line 1, columns A through F is greater than "0," the 5.3% loss reported on Schedule D-IS, Part 1, line 13 can be applied against net gains within other holding periods reported on Schedule D-IS, Part 2, line 1, columns A through F, beginning with the highest tax rate and applying any remaining loss against the next highest tax rate. For example, a 5.3% loss is first applied to 5% gains, any remaining loss is applied to 4% gains, any remaining loss is applied against 3% gains, any remaining loss is applied against 2% gains, any loss remaining is applied against 1% gains, then any remaining loss is applied against 0% gains. Report such losses in Schedule D-IS, Part 2, line 2, columns A through F. Note: The amount entered in Schedule D-IS, Part 2, line 2, columns A through F, considered as a positive amount, cannot exceed the amount entered in Schedule D-IS, Part 2, line 1, columns A through F.

Line 3. Subtotal Combine line 1, column A with line 2, column A and enter the result in line 3, column A. Not less than "0." Combine line 1, column B with line 2, column B and enter the result in line 3, column B. Not less than "0." Combine line 1, column C with line 2, column C and enter the result in line 3, column C. Not less than "0." Combine line 1, column D with line 2, column D and enter the result in line 3, column D. Not less than "0." Combine line 1, column E with line 2, column E and enter the result in line 3, column E. Not less than "0." Combine line 1, column F with line 2, column F and enter the result in line 3, column F. Not less than "0."

Line 4. Short-Term Capital Losses Applied Against Long-Term Installment Sales If any amount in Schedule D-IS, Part 2, line 3, columns A through F is a positive amount and Schedule B, line 21 is a loss, the loss reported on Schedule B, line 21 can be applied against net gains within other holding periods reported on Schedule D-IS, Part 2, line 3, columns A through F, beginning with the highest tax rate and applying any remaining loss against the next highest tax rate. For example, a loss reported on Schedule B, line 21 is first applied to 5% gains, any remaining loss is applied to 4% gains, any remaining loss is applied against 3% gains, any remaining loss is applied against 2% gains, any loss remaining is applied against 1% gains, then any remaining loss is applied against 0% gains. Enter all losses as positive amounts in Schedule D-IS, Part 2, line 4, columns A through F. Note: The amount entered in Schedule D-IS, Part 2, line 4, columns A through F cannot exceed the amount entered in Schedule D-IS, Part 2, line 3, columns A through F. Also, enter the total of Schedule D-IS, Part 2, line 4, columns A through F in Schedule B, line 22.

Line 5. Subtotal Subtract line 4 from line 3. Not less than "0."

Line 6. Allowable Deductions From Your Trade or Business Generally, taxpayers may not use excess 5.3% trade or business deductions to offset other income. However, where the taxpayer files a Massachusetts Schedule C or Schedule E, Massachusetts law allows such offsets if the following requirements are met: the excess 5.3% deductions must be adjusted gross income deductions allowed under MGL Ch. 62, sec. 2(d); and these excess deductions may only be used to offset other income which is effectively connected with the active conduct of a trade of business or any other income allowed under IRC, sec. 469(d)(1)(B) to offset losses from passive activities. Enclose Schedule C-2 with your return. Enter in line 6 the amount from Schedule C-2, line 14.

Note: This deduction is only allowed for taxpayers filing either Form 1, Form 1-NR/Y or Form 2. Taxpayer filing Forms 3F or 3M are NOT eligible for this deduction.

Line 7. Subtotal Subtract line 6 from line 5 and enter the result in line 7. Not less than "0."

Line 8. Excess Exemptions Complete a pro-forma version of the Excess Exemption Worksheet found in the 2003 Form 1 Instructions Booklet pdf format of form1_inst.pdf on page 12.

Note: This deduction is only allowed for taxpayers filing either Form 1, Form 1-NR/Y or Form 2. Taxpayer filing Forms 3F or 3M are NOT eligible for this deduction.

Form 3F filers should enter, right justified on the return, the apportionment percentage from Schedule E, line 5. If 100%, leave line 8 blank.

Form 2 filers, see "Special Information for Form 2 Filers" section at end of instructions.

Line 9. Taxable Long-Term Capital Gains Subtract line 8 from line 7. Not less than "0." Enter result here and on Schedule D-IS, Part 3, line 23, column 1.

Form 3F filers eligible to apportion, multiply the amount in line 7 by the apportionment percentage entered in line 8 and enter the result here and on Schedule D-IS, Part 3, line 23, column 1. If apportionment percentage from Schedule E, line 5 is 100%, enter in line 9 the amount from line 7.

Part 3. Tax on Long-Term Capital Gains

Line 23. Taxable Long-Term Capital Gains Enter in line 23A, column 1 the amount from Schedule D-IS, Part 1, line 23. Multiply the amount by .053 (5.3%) and enter the result in column 2. Enter in line 23B, column 1 the amount from Schedule D-IS, Part 2, page 2, line 9, column A. Multiply the amount by .05 (5%) and enter the result in column 2. Enter in line 23C, column 1 the amount from Schedule D-IS, Part 2, page 2, line 9, column B. Multiply the amount by .04 (4%) and enter the result in column 2. Enter in line 23D, column 1 the amount from Schedule D-IS, Part 2, page 3, line 9, column C. Multiply the amount by .03 (3%) and enter the result in column 2. Enter in line 23E, column 1 the amount from Schedule D-IS, Part 2, page 3, line 9, column D. Multiply the amount by .02 (2%) and enter the result in column 2. Enter in line 23F, column 1 the amount from Schedule D-IS, Part 2, page 4, line 9, column E. Multiply the amount by .01 (1%) and enter the result in column 2. Enter in line 23G, column 1 the amount from Schedule D-IS, Part 2, page 4, line 9, column F.

Note: Legislation provides that the personal income tax forms must provide an election to voluntarily pay tax at a rate of 5.85% on taxable income which would otherwise be taxed at a rate of 5.3%. The election to pay tax at the rate of 5.85% does not apply to items of income taxed at 12% (short-term capital gains and gains on collectibles). If choosing the optional 5.85% tax rate, multiply line 23A by .0585 and fill in the oval on Form 1, line 22.

Line 24. Tax on Long-Term Capital Gains Add lines 23A, 23B, 23C, 23D, 23E and 23F of Schedule D-IS, Part 3, column 2 and enter the result here and on Form 1, line 24; Form 1-NR/PY, line 28; Form 3F, line 22; or Form 3M, line 7. Form 2 filers, see "Special Information for Form 2 Filers" section at end of instructions.

Line 25. Available Losses for Carryover Enter the amount from Schedule D-IS, Part 1, line 19, only if it is a loss.

Special Information for Form 2 Filers

Part 1, line 21 and Part 2, line 7 Enter the modified gross income in Massachusetts. Modified gross income is the amount reported on line 19 less any amount in line 20 reduced by the portion of such amount that is attributable to deductible amounts paid to or accumulated for nonresident beneficiaries. No amount of capital gains accumulated for an unascertained remainder may be deducted in determining amounts reported in line 21. If there is Massachusetts source income in line 21 refer to Form 2, line 8. Enclose an explanation if line 21 has been modified.

Part 1, line 22 and Part 2, line 8

Beneficiary's Claim of No Tax Status Exemption If a beneficiary's Massachusetts gross income exceeds $8,000, if single; $12,700, plus $1,000 per dependent if filing as head of household; or $14,200, plus $1,000 per dependent if married filing a joint return, the beneficiary does not qualify for a No Tax Status exemption. If a beneficiary's Massachusetts gross income was under the applicable threshold, and after adding in the amount of fiduciary income paid to/or vested in the beneficiary remains below the threshold, the beneficiary may claim a No Tax Status exemption. Complete and enclose a copy of Form 20, Beneficiary's Claim of No Tax Status Exemption. First, the No Tax Status exemption is claimed against the beneficiary's 5.3% income. Next, it is claimed against any interest or dividends taxed at 5.3%. Then, it is claimed against income taxed at 12%. Next, it is claimed against capital gains taxed at 5%. Next, it is claimed against capital gains taxed at 4%. Then, it is claimed against capital gains taxed at 3%. Next, it is claimed against capital gains taxed at 2%. Then, it is claimed against capital gains taxed at 1%. Next, it is claimed against capital gains taxed at 0%. Then it is claimed against long-term common trust fund capital gains taxed at 5.3%.

Beneficiary's Claim for Exemptions Applicable to Fiduciary Income Form 20A, Beneficiary's Claim for Exemptions Applicable to Fiduciary Income, allows a fiduciary to claim any unused exemptions to which a beneficiary is entitled and apply those exemptions against trust or estate income to which that beneficiary is entitled. (These exemptions can only offset fiduciary income, which is vested in/or paid to the beneficiary.)

Form 20A must be filed along with a completed Form 1, Resident Income Tax Return, or Form 1-NR/PY, Nonresident or Part-Year Resident Income Tax Return, for each beneficiary who is claiming excess exemptions in the same tax year. U.S. Form 1040, Schedule A, Itemized Deductions, must also be filed if claiming excess itemized medical and dental expenses. Exemptions must be applied in the following order:

First, the exemptions are applied against the beneficiary's 5.3% income. Next, any unused exemptions are applied against any interest or dividends taxed at 5.3%. Then, any remaining unused exemptions are applied against income taxed at 12%. Next, any remaining unused exemptions are applied against capital gains taxed at 5%. Next, any remaining unused exemptions are applied against capital gains taxed at 4%. Then, any remaining unused exemptions are applied against capital gains taxed at 3%. Next, any remaining unused exemptions are applied against capital gains taxed at 2%. Then, any remaining unused exemptions are applied against capital gains taxed at 1%. Next, any remaining unused exemptions are applied against capital gains taxed at 0%. Then, any remaining unused exemptions are applied against long-term common trust fund capital gains taxed at 5.3%.

Form 2 filers completing Schedule D-IS should fill in the oval on Form 2, line 33 and leave line 33 blank. They should then complete Form 2, line 34 through line 40 for long-term common trust fund capital gains, if applicable. Then, they should multiply Form 2, line 40 by .053 and add that amount to the amount from Schedule D-IS, line 24 and enter the result in Form 2, line 41.