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 December 31, 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 January 1, 2003, report those gains on Schedule D pdf format of    sch_d.pdf  .

Tax rates for transactions completed before January 1, 2003 Transactions completed prior to January 1, 2003 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 January 1, 2003. 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, 2003, 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 January 1, 2003 (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 13 or 1040A, line 10. 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 December 31, 2002. Enter in line 12 the amount of long-term gain on installment sales that occurred from January, 1, 1996 through December 31, 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 2006 Form 1 Instructions Booklet pdf format of    1_instr.pdf  on page 25.

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 appropriate amount from Schedule C-2.

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."

Note: Taxpayers completing line 6 of the Massachusetts AGI worksheet or Schedule NTS-L-NR/PY should enter the total of Schedule D-IS, Part 1, line 21 and Part 2, line 7, columns A through F. Not less than "0."

Special instruction for Form 2 filers. In determining the amount to report on line 21, deduct from the subtotal reported thereon (line 19 less any amount in line 20) the portion of such amount that is (1) actually paid to beneficiaries and/or (2) accumulated or irrevocably set aside for vested nonresident beneficiaries and or charities. No amount of Massachusetts source income accumulated for vested nonresident beneficiaries and or charities may be deducted in determining the amount to report on line 21, however.

Line 22. Excess Exemptions Complete a pro-forma version of the Excess Exemption Worksheet found in the 2006 Form 1 Instructions Booklet pdf format of    1_instr.pdf  on page 13.

Note: This deduction is only allowed for taxpayers filing either Form 1 or Form 1-NR/Y. Taxpayers filing Form 2, 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 23, 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 23, 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 December 31, 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 December 31, 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 December 31, 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 December 31, 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 December 31, 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 December 31, 2002. Enter in column F the gain from the installment sale of assets held more than six years occurring from January 1, 1996 through December 31, 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 appropriate amount from Schedule C-2.

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.

Part 2. Line 7. Subtotal. Subtract line 6 from line 5. Not less than "0."

Note: Taxpayers completing line 6 of the Massachusetts AGI worksheet or Schedule NTS-L-NR/PY should enter the total of Schedule D-IS, Part 1, line 21 and Part 2, line 7, columns A through F. Not less than "0."

Special instruction for Form 2 filers. In determining the amount to report on line 7, deduct from the subtotal reported thereon (line 5 less any amount in line 6) the portion of such amount that is (1) actually paid to beneficiaries and/or (2) accumulated or irrevocably set aside for vested nonresident beneficiaries and or charities. No amount of Massachusetts source income accumulated for vested nonresident beneficiaries and or charities may be deducted in determining the amount to report on line 7, however.

Line 8. Excess Exemptions Complete a pro-forma version of the Excess Exemption Worksheet found in the 2006 Form 1 Instructions Booklet pdf format of    1_instr.pdf  on page 13.

Note: This deduction is only allowed for taxpayers filing either Form 1or Form 1-NR/Y. Taxpayer filing Forms 2, 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.

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 23, 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 23A, 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 23B, 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 23C, 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 23D, 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 23E, 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 23F, 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 23 by .0585 and fill in the oval on Form 1, line 22.

Line 24. Tax on Long-Term Capital Gains Add lines 23, 23A, 23B, 23C, 23D, and 23E 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 27; 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.