An installment sale occurs when you sell property and receive at least one payment after the end of the tax year in which the sale took place. This method allows you to spread the gain over multiple years, reporting income as payments are received.
How to Report:
- Use Form 6252 to report income from an installment sale using the installment method.
- You must report the gain portion of each payment received during the year.
Electing Out of the Installment Method:
You may choose to elect out of the installment method and report the entire gain in the year of the sale.
- If you elect out, report the sale on Schedule D, Form 4797, or Form 8949, depending on the type of property sold.
- To elect out, file a timely return (including extensions) and report the full gain.
- If you already filed your return and wish to elect out, you can amend it within 6 months of the original due date (excluding extensions).
- Write “Filed pursuant to section 301.9100-2” at the top of the amended return.
Do Not Use Form 6252 If:
- The sale does not result in a gain, even if payments are received after the sale year.
- You sold stocks or securities traded on an established market—these are treated as fully paid in the year of sale.
- You choose not to use the installment method and report the full gain in the year of sale.