IRS Form 6252 – Installment Sale Income – In the world of taxation, selling property doesn’t always mean recognizing all your income in one year. If you’re receiving payments over time, you might be dealing with an installment sale. IRS Form 6252, Installment Sale Income, is the key document for reporting this type of transaction properly. This guide breaks down everything you need to know about Form 6252, from its purpose to step-by-step filing instructions, using the latest IRS guidelines. Whether you’re a homeowner selling a property or a business owner disposing of assets, understanding how to handle installment sales can help you manage your tax obligations effectively.
What Is an Installment Sale?
An installment sale occurs when you sell property and receive at least one payment after the tax year in which the sale happens. This could include real estate, personal property, or business assets, as long as the payments are spread out. The installment method allows you to report the gain proportionally as you receive payments, which can defer taxes and potentially lower your overall tax burden in the year of sale.
Key elements include:
- Selling Price: The total amount, including cash, notes, and the fair market value (FMV) of any property received.
- Adjusted Basis: Your original cost plus improvements, minus depreciation and other adjustments.
- Gross Profit: Selling price minus adjusted basis and selling expenses.
- Contract Price: Selling price minus any mortgages or debts assumed by the buyer.
Not all sales qualify. For example, dealer sales of inventory, stocks traded on established markets, or sales resulting in a loss cannot use the installment method. If the sale involves unstated interest or original issue discount (OID), you may need to recharacterize part of the payments as interest income.
Who Must File IRS Form 6252?
You must file Form 6252 if you have an installment sale and are using the installment method to report the income. This applies to casual sales of real or personal property (not inventory) where payments extend beyond the sale year. File a separate form for each installment sale.
Exceptions:
- No need to file if there’s no gain (even if payments continue).
- You can elect out of the installment method and report the entire gain in the year of sale by not using Form 6252. This election must be made by the return’s due date, including extensions.
Common filers include individuals selling homes, land, or business assets, as well as estates or trusts. If the sale is to a related party, additional reporting in Part III may be required.
When and Where to File Form 6252?
File Form 6252 with your tax return (e.g., Form 1040) for the year of the sale and every subsequent year you receive payments. Even in the final payment year or if no payment is received in a given year, you must file if the obligation remains outstanding.
- Due Date: Same as your tax return—April 15 (or the next business day) for individuals, with extensions available.
- Where to File: Attach to your federal tax return. Electronic filing is encouraged via IRS e-file.
- Amendments: If you elect out after filing, amend within six months.
For tax year 2025 (returns due in 2026), no major changes have been announced, but always check IRS.gov for updates.
Step-by-Step Guide to Completing IRS Form 6252
Form 6252 has three parts: basic information, Part I (Gross Profit and Contract Price), Part II (Installment Sale Income), and Part III (Related Party Installment Sale Income). Complete it for every year of the installment agreement. Use data from the year of sale for percentages in later years.
Header and Basic Information
- Enter your name and identifying number.
- Line 1: Describe the property (use codes 1-4 for type).
- Lines 2a-2b: Dates acquired and sold.
- Line 3: Indicate if sold to a related party.
- Line 4: Confirm if selling price is determinable (No for contingent sales).
Part I: Gross Profit and Contract Price (Complete Every Year)
This calculates your gross profit percentage.
| Line | Description | What to Enter |
|---|---|---|
| 5 | Selling price including debts | Total cash, FMV of property, and assumed debts (exclude interest). |
| 6 | Assumed liabilities | Mortgages/debts buyer assumes. |
| 7 | Subtract 6 from 5 | Adjusted contract price. |
| 8 | Cost or basis | Original cost plus improvements. |
| 9 | Depreciation | Allowed or allowable amount. |
| 10 | Adjusted basis (8 – 9) | |
| 11 | Selling expenses | Commissions, fees. |
| 12 | Recapture from Form 4797 | Ordinary income recapture. |
| 13 | Add 10-12 | Total deductions. |
| 14 | Subtract 13 from 5 | Gross profit base. |
| 15 | Excluded gain (e.g., home sale) | Per Pub. 523. |
| 16 | Gross profit (14 – 15) | |
| 17 | Excess assumed liabilities | If 6 > 13. |
| 18 | Contract price (7 + 17) |
Part II: Installment Sale Income (Complete Every Year)
- Line 19: Gross profit percentage (16 / 18, as decimal).
- Line 20: Excess from line 17 (sale year only).
- Line 21: Payments received this year (cash + FMV).
- Line 22: Add 20 + 21.
- Line 23: Prior payments.
- Line 24: Income (22 x 19).
- Line 25: Ordinary recapture.
- Line 26: Capital gain (24 – 25); report on Schedule D or Form 4797.
Part III: Related Party Sales (If Applicable)
Complete if line 3 is Yes and not final payment year. Report additional income if the related party resells within two years.
- Line 27: Related party details.
- Lines 28-37: Calculate additional gain from second disposition.
After completing, transfer amounts to your main return.
Special Rules and Considerations for Installment Sales
- Related Parties: Disallowed for depreciable property; accelerated reporting if resale within two years.
- Pledge Rule: If obligation pledged for loan over $150,000, proceeds count as payment.
- Repossessions: Special calculations for gain/loss; use Worksheets C/D in Pub. 537.
- Interest on Deferred Tax: Applies if obligations exceed $5 million.
- Like-Kind Exchanges: Limited to real property post-2017; adjusts contract price.
- Contingent Sales: Use regs for undetermined prices.
If selling a business, allocate prices using the residual method and file Form 8594.
Examples of Installment Sale Reporting
Example 1: You sell land for $100,000 (basis $40,000, expenses $5,000). Gross profit = $55,000. Contract price = $100,000. Percentage = 55%. Down payment $20,000: Income = $11,000.
Example 2: Related party sale of $500,000 (50% profit). Related party resells for $600,000: You report additional $200,000 gain.
Example 3: Repossession after $9,000 payments (prior gain $1,800, gross profit $5,000, costs $500): Taxable gain = $2,700.
Related Forms and Publications
- Form 4797: For business property sales and recaptures.
- Schedule D (Form 1040): For capital gains.
- Publication 537: Installment Sales: Detailed rules and worksheets.
- Publication 523: Selling Your Home: For exclusions.
- Form 8949: If electing out.
- Form 8997: For Qualified Opportunity Fund investments.
Frequently Asked Questions About IRS Form 6252
1. Can I use the installment method for stock sales?
No, not for stocks traded on established markets.
2. What if the buyer assumes a mortgage larger than my basis?
The excess counts as a payment in the sale year.
3. Do I report interest separately?
Yes, interest is ordinary income; report on Schedule B.
4. What happens if the selling price changes later?
Refigure the gross profit percentage using Worksheet B in Pub. 537.
5. Is there a penalty for not filing Form 6252?
Yes, failure to file can lead to penalties and interest.
Conclusion
Navigating IRS Form 6252 for installment sale income ensures you comply with tax rules while optimizing your reporting. Always consult Publication 537 for in-depth guidance and consider professional tax advice for complex sales. By understanding the gross profit percentage and special rules, you can accurately report your income and avoid surprises. For the latest forms, visit IRS.gov and download Form 6252 directly. Stay informed, as tax laws can evolve—check for any 2026 updates affecting 2025 returns.