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Publication 537

Installment Sales


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Note. Section references within this publication are to the Internal Revenue Code and regulation references are to the Income Tax Regulations under the Code.
An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. This method of reporting gain is called the installment method. You cannot use the installment method to report a loss. You can choose to report all of your gain in the year of sale.
This publication discusses the general rules that apply to using the installment method. It also discusses more complex rules that apply only when certain conditions exist or certain types of property are sold.
If you sell your home or other nonbusiness property under an installment plan, you may need to read only the General Rules. If you sell business or rental property or have a like-kind exchange or other complex situation, also see the appropriate discussion under Other Rules.

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Useful items

You may want to see:

 523 Selling Your Home
 541 Partnerships
 544 Sales and Other Dispositions of Assets
 550 Investment Income and Expenses
 551 Basis of Assets
 4895 Tax Treatment of Property Acquired From a Decedent Dying in 2010
Form (and Instructions)
 4797: Sales of Business Property
 6252: Installment Sale Income

See How To Get Tax Help near the end of this publication for information about getting publications and forms.

What Is an
Installment Sale?(p2)

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 (see Electing Out of the Installment Method under Other Rules, later) or the transaction is one for which the installment method may not apply.
The installment sales method cannot be used for the following.

Sale of inventory.(p2)

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.(p2)

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.(p2)
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).

Stock or securities.(p2)

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.(p2)

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.