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 buyer.
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 traded on an
established securities market. 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 or both.
For additional information including forms and instructions, order Publication
537, Installment Sales, by calling 1-800-829-3676.
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