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Category: Questions about Income

What is an "installment sale"?

An installment sale is a sale of property where you receive at least one payment after the tax year of the sale.

The rules for installment sales do not apply if you elect not to use the installment method or the transaction is one for which the installment method may not apply.

Example: You sell a piece of property for $50,000. The buyer paid $10,000 down and will pay the remaining $40,000 over the next 10 years. Because you will be receiving payments in years after the current year, unless you "elect out", you would report this sale as an installment sale on Form 6252.

Electing Out: If you elect out, you report all the gain as income in the year of the sale, even if you will receive a payment in a later year. If you "elect out", you would report the sale of the property on Schedule D, not of Form 6252. Installment sale rules do not apply to losses.

The installment sales method cannot be used for the following:

Sale of inventory. The regular sale of inventory of personal property does not qualify as an installment sale even if you receive a payment after the year of sale. See Sale of a Business under Other Rules, later.

 

Dealer sales. Sales of personal property by a person who regularly sells or otherwise disposes of the same type of personal property on the installment plan are not installment sales. This rule also applies to real property held for sale to customers in the ordinary course of a trade or business. However, the rule does not apply to an installment sale of property used or produced in farming.

Special rule. Dealers of time-shares and residential lots can treat certain sales as installment sales and report them under the installment method if they elect to pay a special interest charge. For more information, see section 453(l) of the Internal Revenue Code.

Stock or securities. You cannot use the installment method to report gain from the sale of stock or securities traded on an established securities market. You must report the entire gain on the sale in the year in which the trade date falls.

Installment obligation. The buyer's obligation to make future payments to you can be in the form of a deed of trust, note, land contract, mortgage, or other evidence of the buyer's debt to you.

To locate Form 6252 within our program go to Federal Section > Income > Enter Myself > Other Income > Form 6252- Installment Sale Income or use the Search Bar on the top right side of the screen.

For more information about installment sales, please reference IRS Publication 537, Installment Sales or the Instructions for Form 6252.