Installment Sale Income

IRS Form 6252

Purpose: IRS Form 6252 is used to report income from an installment sale using the installment method. An installment sale occurs when you sell property and receive at least one payment after the tax year in which the sale took place. This form helps taxpayers determine the taxable portion of each payment received, separating return of capital from profit and interest.

Key Components of Form 6252:

1. Part I – Gross Profit and Contract Price:

   This section calculates the gross profit from the sale and determines the contract price. You’ll input details such as:

   • Selling price
   • Adjusted basis of the property
   • Depreciation recapture
   • Selling expenses
2. Part II – Installment Sale Income:

   Here, you’ll report payments received during the tax year, calculate the gross profit percentage, and determine the taxable portion of the payments. This section also accounts for any payments received in prior years.

3. Part III – Related Party Installment Sale Income:

   If the sale was made to a related party (e.g., family members or entities you control), this section addresses any subsequent dispositions of the property by the related party, which may affect your reporting.

Important Considerations:

• Electing Out:

  You can choose to report the entire gain in the year of sale by electing out of the installment method. To do this, report the full gain on a timely filed tax return for the year of sale.

• Ineligible Sales:

  The installment method cannot be used for sales that result in a loss, sales of inventory, or sales of stocks and securities traded on established markets.

• Interest Reporting:

  Any interest received from the installment sale should be reported separately as ordinary income; it is not included on Form 6252.

For detailed instructions and the latest updates, refer to the IRS’s official Form 6252 and its accompanying instructions.

For a visual walkthrough of Form 6252, you might find the following video helpful:

Note: This webpage provides a summary of IRS Form 6252. For comprehensive information and guidance, always refer to the official IRS documentation or consult a tax professional.