If you sell property at a gain and will receive one or more payments
after the close of the tax year, you may be required to report the
sale as an installment sale unless you "elect out" of such treatment
in the year of the sale. An installment sale is a sale of property
where at least one payment is to be received after the close of the
tax year in which the sale occurs. Payments are usually received over
a period of years with the seller carrying a note or mortgage for the
Under such an arrangement, for each year until the debt is paid in
full, you will include in income only a proportionate amount of the
gain, plus the interest that you actually receive. Any interest
received is reported on Schedule B of Form 1040. If you fail to
charge any interest on an installment sale or interest is charged
below certain rates, you will be considered to have charged interest
at a rate fixed by law.
Refer to Publication 537, Installment Sales, for more information
about unstated interest.
You may elect to report all of the gain from an installment sale as
income in the year of the sale. However, you may pay more tax this
way. You may not use the installment method to report gain from the
sale of inventory or stocks and securities. The installment sale
rules do not apply to losses.
Use Form 6252 Installment Sale Income, to figure your installment
sale income each year. You may also need Schedule D, Form 1040, or
Form 4797, Sales of Business Property (Also Involuntary Conversions
and Recapture Amounts Under Sections 179 and 280F(b)(2)), or both.
For additional information, refer to Publication 537.
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