Installment Sales – Form 6252

An installment agreement is one where you receive at least one payment after the end of the tax year when the sale occurs. If you realize a gain on an installment sale, you might be able to report part of the gain when you receive each payment. This method of reporting gain is called the installment method.

Certain types of sales don’t qualify as installment sales, including:

  • Sale of inventory items
  • Sales made by dealers in the type of property being sold
  • Sale of stocks or other investment securities
  • Sale that results in a loss

As the seller, you aren’t required to report an installment sale using this method. However, you might want to do so since you can spread the tax over all the years the buyer makes installment payments. You can do this instead of paying the tax on your gain all in one year.

You’ll usually use Form 6252 to report installment sale income from casual sales of real or personal property. However, special rules might:

  • Allow for exclusion of income
  • Require reporting on other forms, like Form 8949 or Form 4797

Each payment you receive has three parts:

For each year you receive a payment or are treated as receiving a payment, you must include in your income both:

  • Interest
  • Portion of the gain

Interest income

You must consider a part of each payment you receive as interest. This applies even if the agreement you reached with the buyer didn’t include interest. The interest portion is taxed as ordinary income and doesn’t have any special tax rates.

To learn more about the interest income you must report, see Publication 537: Installment Sales at www.irs.gov.

Return of your basis and gain on the sale

After you figure the interest portion of your payment, you’re left with these two parts:

  • Tax-free return of your adjusted basis in the property
  • Your gain referred to as installment sale income on Form 6252

You’ll need this information to complete the form:

  • Selling price — This is the total cost of the property to the buyer. It includes any selling expenses the buyer paid.
  • Adjusted basis — This is your adjusted basis in the property, modified by:
    • Additions or subtractions to basis while you held the property
    • Selling expenses you paid
  • Depreciation you recaptured — You could be subject to depreciation recapture when selling certain property. This applies to property that’s eligible for depreciation methods other than straight-line depreciation. You need this amount to figure the gain from the sale.

Subtract the amount of depreciation you took in previous years from your basis in the property. Both of these apply to any depreciation recapture:

  • It will be taxed as ordinary income.
  • It isn’t eligible for capital gain rates.

To learn more about depreciation recapture, see Publication 537: Installment Sales at www.irs.gov.

Related Topics

Related Resources

Tax Filing Extension Deadline | H&R Block

Do you need more time to file taxes? Review these time-sensitive tax pro tips to prepare for the tax filing extension deadline. Read more from our pros on the H&R Block blog.

IRS Letter 728 – Current Balance Due

Your IRS balance due has been assigned to a Revenue Officer. Learn more about IRS letter 728 and how to handle it with help from the experts at H&R Block.

What To Do With A Tax Refund

Wondering how to use your tax refund? You can save your tax refund or pay down debt to improve your financial situation. Learn more at H&R Block.

What Are the Tax Brackets?

What are the tax brackets for U.S. taxes? Review income tax brackets based on your filing status and taxable income and understand how they apply to you.