How to Report Taxable Installment Sales
If you sell property and you receive at least one payment after the year in which it sold, it's considered an installment sale. However, when you are a dealer who regularly sells similar personal property under an installment plan, such sales and the sale of inventory items are not installment sales for tax purposes. Use the installment method to report sales that do qualify, unless you elect not to use it.
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Instructions
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Determine if your sale of property on the installment plan qualifies as an installment sale for tax purposes. The property cannot be usual inventory items nor sales of property regularly handled by dealers.
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Download Form 6252 and Form 4797 from the Internal Revenue Service (IRS) website (see Resources below). Use these forms to report installment sale income in the year of sale and also payments received in subsequent years.
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Include the installment sale income from Form 6252 on tax return Schedule D Capital Gains and Losses if it's related to personal use capital assets. Report the installment income on Form 4797 if it's from the sale of business or rental property.
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Tips & Warnings
Skip the installment method and report the sale directly on Schedule D if it is a capital asset sale, or on Form 4797 if it relates to business or rental property.
Don't use the installment method for sales of property at a loss. You can only deduct losses from the sale of business or investment property in the year of sale.
Don't use the installment method to report gains from the sale of stocks or securities on an established securities market. They must be reported in the year of sale.
