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            Department of the Treasury                        Contents
            Internal Revenue Service
                                                              Future Developments . . . . . . . . . . . . . . . . . . . . . . .         1
                                                              Introduction  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Publication 537
Cat. No. 15067V                                               What’s an Installment Sale? . . . . . . . . . . . . . . . . . .           2
                                                              General Rules   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
                                                              Figuring Installment Sale Income . . . . . . . . . . . . .                3
Installment 
                                                              Other Rules   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
                                                              Electing Out of the Installment Method . . . . . . . . .                  6
Sales                                                         Payments Received or Considered Received                          . . . . 6
                                                              Escrow Account . . . . . . . . . . . . . . . . . . . . . . . . .          9
For use in preparing                                          Depreciation Recapture Income . . . . . . . . . . . . . .                 9
                                                              Sale to a Related Person . . . . . . . . . . . . . . . . . . .            9
2023 Returns                                                  Like-Kind Exchange            . . . . . . . . . . . . . . . . . . . . .   11
                                                              Contingent Payment Sale               . . . . . . . . . . . . . . . . .   12
                                                              Single Sale of Several Assets               . . . . . . . . . . . . . .   12
                                                              Sale of a Business          . . . . . . . . . . . . . . . . . . . . . .   12
                                                              Unstated Interest and Original Issue Discount 
                                                                    (OID) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   15
                                                              Disposition of an Installment Obligation                  . . . . . . .   17
                                                              Repossession          . . . . . . . . . . . . . . . . . . . . . . . . .   18
                                                              Interest on Deferred Tax            . . . . . . . . . . . . . . . . . .   22
                                                              Special Rules for Capital Gains Invested in 
                                                                    QOF    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
                                                              Reporting an Installment Sale             . . . . . . . . . . . . . . .   24
                                                              How To Get Tax Help       . . . . . . . . . . . . . . . . . . . . . . .   25
                                                              Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

                                                              Future Developments
                                                              For  the  latest  information  about  developments  related  to 
                                                              Pub.  537,  such  as  legislation  enacted  after  it  was 
                                                              published, go to IRS.gov/Pub537.

                                                              Reminders
                                                              Reporting form for Qualified Opportunity Fund (QOF) 
                                                              investments.    Form 8997, Initial and Annual Statement of 
                                                              Qualified Opportunity Fund (QOF) Investments, is used to 
                                                              report holdings, deferred gains, and dispositions of QOF 
                                                              investments. See the instructions for Form 8997 for more 
                                                              information.
                                                              Like-kind  exchanges.         Beginning  after  December  31, 
                                                              2017, section 1031 like-kind exchange treatment applies 
                                                              only to exchanges of real property held for use in a trade 
                                                              or business or for investment, other than real property held 
                                                              primarily for sale. See Like-Kind Exchange, later.
                                                              Photographs of missing children.                  The IRS is a proud 
Get forms and other information faster and easier at:         partner  with  the  National  Center  for  Missing  &  Exploited 
• IRS.gov (English)         • IRS.gov/Korean (한국어)            Children® (NCMEC). Photographs of missing children se-
• IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский)       lected by the Center may appear in this publication on pa-
• IRS.gov/Chinese (中文)      • IRS.gov/Vietnamese (Tiếng Việt) 
                                                              ges  that  would  otherwise  be  blank.  You  can  help  bring 

Nov 28, 2023

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these children home by looking at the photographs and Useful Items
calling 1-800-THE-LOST (1-800-843-5678) if you recog- You may want to see:
nize a child.
Publication
523 523 Selling Your Home
Introduction 541 541 Partnerships
Note. Section references within this publication are to the 544 544 Sales and Other Dispositions of Assets
Internal Revenue Code, and regulation references are to
550
the Income Tax Regulations. 550 Investment Income and Expenses
551 551 Basis of Assets
Installment sale. An installment sale is a sale of property
where you receive at least one payment after the tax year Form (and Instructions)
of the sale. If you realize a gain on an installment sale, you
Schedule A (Form 1040)
may be able to report part of your gain when you receive Schedule A (Form 1040) Itemized Deductions
each payment. This method of reporting gain is called the Schedule B (Form 1040) Schedule B (Form 1040) Interest and Ordinary
installment method. You can’t use the installment method Dividends
to report a loss. You can choose to report all of your gain Schedule D (Form 1040) Schedule D (Form 1040) Capital Gains and Losses
in the year of sale.
This publication discusses the general rules that apply Schedule D (Form 1041) Schedule D (Form 1041) Capital Gains and Losses
to using the installment method. It also discusses more Schedule D (Form 1065) Schedule D (Form 1065) Capital Gains and Losses
complex rules that apply only when certain conditions ex-
ist or certain types of property are sold. Schedule D (Form 1120) Schedule D (Form 1120) Capital Gains and Losses
If you sell your home or other nonbusiness property un- Schedule D (Form 1120-S) Schedule D (Form 1120-S) Capital Gains and
der an installment plan, you may need to read only the
Losses and Built-in Gains
General Rules section, later. If you sell business or rental
property or have a like-kind exchange or other complex 1040 1040 U.S. Individual Income Tax Return
situation, also see the appropriate discussion under Other 1040-NR 1040-NR U.S. Nonresident Alien Income Tax Return
Rules, later.
1040-SR 1040-SR U.S. Income Tax Return for Seniors
Comments and suggestions. We welcome your com- 1120 1120 U.S. Corporation Income Tax Return
ments about this publication and suggestions for future
editions. 1120-F 1120-F U.S. Income Tax Return of a Foreign
You can send us comments through IRS.gov/ Corporation
FormComments. Or, you can write to the Internal Revenue 4797 4797 Sales of Business Property
Service, Tax Forms and Publications, 1111 Constitution
Ave. NW, IR-6526, Washington, DC 20224. 6252 6252 Installment Sale Income
Although we can’t respond individually to each com- 8594 8594 Asset Acquisition Statement Under Section
ment received, we do appreciate your feedback and will
1060
consider your comments and suggestions as we revise
our tax forms, instructions, and publications. Don’t send 8949 8949 Sales and Other Dispositions of Capital Assets
tax questions, tax returns, or payments to the above ad- 8997 8997 Initial and Annual Statement of Qualified
dress. Opportunity Fund (QOF) Investments
Getting answers to your tax questions. If you have
a tax question not answered by this publication or the How
To Get Tax Help section at the end of this publication, go What’s an Installment Sale?
to the IRS Interactive Tax Assistant page at IRS.gov/
Help/ITA where you can find topics by using the search An installment sale is a sale of property where you receive
feature or viewing the categories listed. at least one payment after the tax year of the sale.
Getting tax forms, instructions, and publications. The rules for installment sales don’t apply if you elect
Go to IRS.gov/Forms to download current and prior-year not to use the installment method (see Electing Out of the
forms, instructions, and publications. Installment Method, later) or the transaction is one for
Ordering tax forms, instructions, and publications. which the installment method may not apply.
Go to IRS.gov/OrderForms to order current forms, instruc- The installment sales method can’t be used for the fol-
tions, and publications; call 800-829-3676 to order lowing.
prior-year forms and instructions. The IRS will process
your order for forms and publications as soon as possible. Sale of inventory. The regular sale of inventory of per-
Don’t resubmit requests you’ve already sent us. You can sonal property doesn’t qualify as an installment sale even
get forms and publications faster online. if you receive a payment after the year of sale. See Sale of
a Business, later.

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Dealer sales. Sales of personal property by a person • Gain on the sale.
who regularly sells or otherwise disposes of the same type In each year you receive a payment, you must include in
of personal property on the installment plan aren’t install- income both the interest part and the part that’s your gain
ment sales. This rule also applies to real property held for on the sale. You don’t include in income the part that’s the
sale to customers in the ordinary course of a trade or busi- return of your basis in the property. Basis is the amount of
ness. However, the rule doesn’t apply to an installment your investment in the property for installment sale purpo-
sale of property used or produced in farming. ses. You may have interest income in years you do not re-
Special rule. Dealers of timeshares and residential ceive a payment.
lots can treat certain sales as installment sales and report
them under the installment method if they elect to pay a Interest Income
special interest charge. For more information, see section
453(l). You must report interest as ordinary income. Interest is
generally not included in a down payment. However, you
Stock or securities. You can’t use the installment may have to treat part of each later payment as interest,
method to report gain from the sale of stock or securities even if it’s not called interest in your agreement with the
traded on an established securities market. You must re- buyer. Interest provided in the agreement is called stated
port the entire gain on the sale in the year in which the interest. If the agreement doesn’t provide for enough sta-
trade date falls. ted interest, there may be unstated interest or original is-
sue discount (OID). You may have to include interest in in-
Installment obligation. The buyer's obligation to make come even in a year you receive no payment, depending
future payments to you can be in the form of a deed of on your regular method of accounting and whether the in-
trust, note, land contract, mortgage, or other evidence of terest is unstated interest or OID. See Unstated Interest
the buyer's debt to you. and Original Issue Discount (OID), later.

Adjusted Basis and Installment Sale Income
General Rules (Gain on Sale)

If a sale qualifies as an installment sale, the gain must be After you’ve determined how much of each payment to
reported under the installment method unless you elect treat as interest, you treat the rest of each payment as if it
out of using the installment method. were made up of two parts.
See Electing Out of the Installment Method, later, for in- • A tax-free return of your adjusted basis in the property.
formation on recognizing the entire gain in the year of sale. Your gain (referred to as installment sale income on
•
Fair market value (FMV). This is the price at which prop- Form 6252).

erty would change hands between a willing buyer and a Figuring adjusted basis for installment sale purpo-
willing seller, neither being under any compulsion to buy ses. You can use Worksheet A to figure your adjusted ba-
or sell and both having a reasonable knowledge of all the sis in the property for installment sale purposes. When
necessary facts. you’ve completed the worksheet, you will also have deter-
Sale at a loss. If you sell property at a loss, you can’t use mined the gross profit percentage necessary to figure your
the installment method. If the loss is on an installment sale installment sale income (gain) for this year.
of business or investment property, you can deduct it only
in the tax year of sale.

Unstated interest and original issue discount. If your
sale calls for payments in a later year and the sales con-
tract provides for little or no interest, you may have to fig-
ure unstated interest or original issue discount (OID), even
if you have a loss. See Unstated Interest and Original Is-
sue Discount (OID), later.

Figuring Installment Sale Income

You can use the following discussions or Form 6252 to
help you determine gross profit, contract price, gross profit
percentage, and installment sale income.
Each payment on an installment sale usually consists
of the following three parts.
• Interest income.
• Return of your adjusted basis in the property.

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   Selling price. The selling price is the total cost of the    Procedure  2011-41,  2011-35  I.R.B.  188,  available  at 
property to the buyer and includes any of the following.        IRS.gov/irb/2011-35_IRB#RP-2011-41.
•  Any money you are to receive.                                Selling expenses.                          Selling expenses relate to the sale 
•  The FMV of any property you are to receive (FMV is           of the property. They include commissions, attorney fees, 
   discussed under General Rules, earlier).                     and any other expenses paid on the sale. Selling expen-
                                                                ses are added to the basis of the sold property.
•  Any existing mortgage or other debt the buyer pays, 
   assumes, or takes (a note, mortgage, or any other lia-       Depreciation recapture.                                                       If the property you sold was 
   bility, such as a lien, accrued interest, or taxes you       depreciable  property,  you  may  need  to  recapture  part  of 
   owe on the property).                                        the gain on the sale as ordinary income. See                                  Depreciation 
                                                                Recapture Income, later.
•  Any of your selling expenses the buyer pays.
                                                                Gross profit.                              Gross profit is the total gain you report 
   Don’t  include  stated  interest,  unstated  interest,  any 
                                                                on the installment method.
amount refigured or recharacterized as interest, or OID.
                                                                To figure your gross profit, subtract your adjusted basis 
   Adjusted basis for installment sale purposes.    Your        for installment sale purposes from the selling price. If the 
adjusted basis is the total of the following three items.       property you sold was your home, subtract from the gross 
                                                                profit any gain you can exclude. See                                          Sale of your home, 
•  Adjusted basis.
                                                                later.
•  Selling expenses.
                                                                Contract price.                            Contract price equals:
•  Depreciation recapture.
                                                                1. The selling price, minus
   Adjusted basis. Basis is your investment in the prop-
erty for installment sale purposes. The way you figure ba-      2. The mortgages, debts, and other liabilities assumed 
sis depends on how you acquire the property. The basis of       or taken by the buyer, plus
property you buy is generally its cost. The basis of prop-      3. The amount by which the mortgages, debts, and other 
erty you inherit, receive as a gift, build yourself, or receive liabilities assumed or taken by the buyer exceed your 
in a tax-free exchange is figured differently.                  adjusted basis for installment sale purposes.
   While  you  own  property,  various  events  may  change 
your original basis. Some events, such as adding rooms or       Gross  profit  percentage.                                                    A  certain  percentage  of 
making permanent improvements, increase basis. Others,          each payment (after subtracting interest) is reported as in-
such as deductible casualty losses or depreciation previ-       stallment sale income. This percentage is called the gross 
ously allowed or allowable, decrease basis. The result is       profit  percentage  and  is  figured  by  dividing  your  gross 
adjusted basis.                                                 profit from the sale by the contract price.
   For more information on how to figure basis and adjus-       The  gross  profit  percentage  generally  remains  the 
ted basis, see Pub. 551. For more information regarding         same for each payment you receive. However, see the Ex-
your  basis  in  property  you  inherited  from  someone  who   ample  under                               Selling  Price  Reduced,  later,  for  a  situation 
died in 2010 and whose executor filed Form 8939, Alloca-        where the gross profit percentage changes.
tion of Increase in Basis for Property Acquired From a De-
                                                                Example.                                   You  sell  property  at  a  contract  price  of 
cedent, see Notice 2011-66, 2011-35 I.R.B. 184, available 
                                                                $6,000  and  your  gross  profit  is  $1,500.  Your  gross  profit 
at IRS.gov/irb/2011-35_IRB#NOT-2011-66.  For  optional 
                                                                percentage is 25% ($1,500 ÷ $6,000). After subtracting in-
safe  harbor  guidance  under  section  1022,  see  Revenue 
                                                                terest,  you  report  25%  of  each  payment,  including  the 

Worksheet A. Figuring Adjusted Basis and Gross Profit 
                Percentage                                                                                 Keep for Your Records
1.     Enter the selling price for the property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              
2.     Enter your adjusted basis for the property . . . . . . . . . . . . . . . . . . . . . . .                                               
3.     Enter your selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                    
4.     Enter any depreciation recapture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                         
5.     Add lines 2, 3, and 4. 
       This is your adjusted basis for
       installment sale purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       
6.     Subtract line 5 from line 1. If zero or less, enter -0-.
       This is your gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   
       If the amount entered on line 6 is zero, stop here. You can’t use the installment 
       method.
7.     Enter the contract price for the property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 
8.     Divide line 6 by line 7. This is your gross profit percentage . . . . . . . . . . . . . . . . . . . . . .                               

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Worksheet B. New Gross Profit Percentage—Selling Price 
                Reduced                                                                                                                       Keep for Your Records
1.    Enter the reduced selling 
      price for the property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                       
2.    Enter your adjusted 
      basis for the 
      property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                   
3.    Enter your selling 
      expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                     
4.    Enter any depreciation 
      recapture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                    
5.    Add lines 2, 3, and 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                      
6.    Subtract line 5 from line 1. 
      This is your adjusted 
      gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               
7.    Enter any installment sale 
      income reported in 
      prior year(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                
8.    Subtract line 7 from line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                          
9.    Future installments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                      
10.   Divide line 8 by line 9. 
      This is your new gross
      profit percentage* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                     

* Apply this percentage to all future payments to determine how much of each of those payments is installment sale income.
down payment, as installment sale income from the sale                The new gross profit percentage, 46.67%, is figured on 
for the tax year you receive the payment. The remainder               Example—Worksheet B.
(balance)  of  each  payment  is  the  tax-free  return  of  your     You will report a gain of $7,000 (46.67% of $15,000) on 
adjusted basis.                                                       each of the $15,000 installments due in 2023, 2024, and 
                                                                      2025.
Amount to report as installment sale income.     Multiply 
the payments you receive each year (less interest) by the 
gross profit percentage. The result is your installment sale          Example—                                                  New Gross Profit 
income for the tax year. In certain circumstances, you may            Worksheet B. Percentage—Selling Price 
be treated as having received a payment, even though you 
                                                                                                                                Reduced
received nothing directly. A receipt of property or the as-
sumption of a mortgage on the property sold may be trea-              1.   Enter the reduced selling 
                                                                           price for the property .                                       . . . . . . . . . . . . . . . . . . . . 85,000
ted  as  a  payment.  For  a  detailed  discussion,  see Pay-         2.   Enter your adjusted 
ments Received or Considered Received, later.                              basis for the 
                                                                           property                                       . . . . . . . . . . . . . . . . . . . . .     40,000
Selling Price Reduced                                                 3.   Enter your selling 
                                                                           expenses                                       . . . . . . . . . . . . . . . . . . . .             -0-
                                                                      4.   Enter any depreciation 
If  the  selling  price  is  reduced  at  a  later  date,  the  gross      recapture                                      . . . . . . . . . . . . . . . . . . . .             -0-
profit on the sale will also change. You must then refigure           5.   Add lines 2, 3, and 4                                        . . . . . . . . . . . . . . . . . . . . . 40,000
the  gross  profit  percentage  for  the  remaining  payments.        6.   Subtract line 5 from line 1. 
Refigure  your  gross  profit  using Worksheet  B.  You  will              This is your adjusted 
spread any remaining gain over future installments.                        gross profit                                     . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000
                                                                      7.   Enter any installment sale 
                                                                           income reported in 
Example. In  2021,  you  sold  land  with  a  basis  of                    prior year(s) .                                    . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
$40,000  for  $100,000.  Your  gross  profit  was  $60,000.  In       8.   Subtract line 7 from line 6 .                                        . . . . . . . . . . . . . . . . . 21,000
2021, you received a $20,000 down payment and the buy-                9.   Future installments                                        . . . . . . . . . . . . . . . . . . . . . . 45,000
er's  note  for  $80,000.  The  note  provides  for  four  annual     10.  Divide line 8 by line 9. 
payments of $20,000 each, plus 8% interest, beginning in                   This is your new gross
2022. Your gross profit percentage is 60%. You reported a                  profit percentage*                                       . . . . . . . . . . . . . . . . . . . . . . . 46.67%

gain  of  $12,000  on  each  payment  received  in  2021  and         * Apply this percentage to all future payments to determine how much of each of those 
2022.                                                                 payments is installment sale income.
In 2023, you and the buyer agreed to reduce the pur-
chase price to $85,000 and payments during 2023, 2024, 
and 2025 are reduced to $15,000 for each year.

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Reporting Installment Sale Income                                  and you owned it for more than 1 year. You decide to elect 
                                                                   out of the installment method and report the entire gain in 
Generally,  you  will  use  Form  6252  to  report  installment    the year of sale.
sale income from casual sales of real or personal property 
during the tax year. You will also have to report the install-     Gain realized:
ment  sale  income  on  Schedule  D  (Form  1040),  Form           Selling price. . . . . . . . . . . . . . . . . . . . . . . . . . .  $50,000
4797,  or  both.  If  the  property  was  your  main  home,  you   Minus:    Property's adjusted basis. . .                $25,000
may be able to exclude part or all of the gain.                              Commission      . . . . . . . . . . .             3,000   28,000
                                                                   Gain realized . . . . . . . . . . . . . . . . . . . . . . . . . .   $22,000
For  more  information  on  how  to  report  your  income 
from  an  installment  sale,  see Reporting  an  Installment 
                                                                   Gain recognized in year of sale:
Sale, later.
                                                                   Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000
                                                                   Issue price of note. . . . . . . . . . . . . . . . . . . . . . .    40,000
                                                                   Total realized in year of sale  . . . . . . . . . . . . . . . . .   $50,000
Other Rules                                                        Minus:    Property's adjusted basis. . .                $25,000
                                                                             Commission      . . . . . . . . . . .             3,000   28,000
The  rules  discussed  in  this  part  of  the  publication  apply Gain recognized. . . . . . . . . . . . . . . . . . . . . . . .      $22,000
only in certain circumstances or to certain types of prop-
erty. The following topics are discussed.                          The  recognized  gain  of  $22,000  is  long-term  capital 
• Electing out of the installment method.                          gain. You include the entire gain in income in the year of 
                                                                   sale,  so  you  don’t  include  in  income  any  principal  pay-
• Payments received or considered received.                        ments you receive in later tax years. The interest on the 
• Escrow account.                                                  note is ordinary income and is reported as interest income 
                                                                   each year.
• Depreciation recapture income.
• Sale to a related person.                                        How to elect out.         To make this election, don’t report your 
                                                                   sale on Form 6252. Instead, report it on Form 8949, Form 
• Like-kind exchange.                                              4797, or both.
• Contingent payment sale.
                                                                   When to elect out.           Make this election by the due date, 
• Single sale of several assets.                                   including extensions, for filing your tax return for the year 
• Sale of a business.                                              the sale takes place.
• Unstated interest and OID.                                       Automatic 6-month extension.                          If you timely file your 
                                                                   tax return without making the election, you can still make 
• Disposition of an installment obligation.
                                                                   the election by filing an amended return within 6 months of 
• Repossession.                                                    the due date of your return (excluding extensions). Write 
                                                                   “Filed  pursuant  to  section  301.9100-2”  at  the  top  of  the 
• Interest on deferred tax.
                                                                   amended  return  and  file  it  where  the  original  return  was 
                                                                   filed.
Electing Out of the Installment 
Method                                                             Revoking the election.              Once made, the election can be 
                                                                   revoked  only  with  IRS  approval.  A  revocation  is  retroac-
If you elect not to use the installment method, you gener-         tive. You won’t be allowed to revoke the election if either of 
ally report the entire gain in the year of sale, even though       the following applies.
you don’t receive all the sale proceeds in that year.              • One of the purposes is to avoid federal income tax.
Use  Regulations  section  1.1001-1(g)  to  figure  the            • The tax year in which any payment was received has 
amount of gain to report from a buyer’s installment obliga-          closed.
tion that is a debt instrument. Generally, the amount real-
ized is the issue price of the buyer’s debt instrument, or (if 
                                                                   Payments Received or Considered 
the buyer’s debt instrument has an issue price determined 
as its stated redemption price at maturity) the instrument’s       Received
stated principal amount reduced by any unstated interest 
                                                                   Unless  you  elected  out  of  the  installment  method,  you 
(as determined under section 483).
                                                                   must figure your gain each year on the payments you re-
Example.    You  sold  a  parcel  of  land  for  $50,000.  You     ceive, or are treated as receiving, from an installment sale.
received  a  $10,000  down  payment  and  will  receive  the       In certain situations, you’re considered to have received 
balance over the next 10 years at $4,000 a year, plus 8%           a  payment,  even  though  the  buyer  doesn’t  pay  you  di-
interest. The buyer gave you a note for $40,000, and the           rectly. These situations occur when the buyer assumes or 
note has adequate stated interest. The note has an issue           pays any of your debts, such as a loan, or pays any of your 
price of $40,000. You paid a commission of 6%, or $3,000,          expenses,  such  as  a  sales  commission.  However,  as 
to a broker for negotiating the sale. The land cost $25,000,       discussed  later,  the  buyer's  assumption  of  your  debt  is 

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treated as a recovery of your basis rather than as a pay-             Selling price. . . . . . . . . . . . . . . . . . . . . . . . . . .     $9,000
ment in many cases.                                                   Minus: Mortgage. . . . . . . . . . . . . . . . . . . . . . . . .       6,000
                                                                      Amount actually received. . . . . . . . . . . . . . . . . . .          $3,000
Buyer Pays Seller's Expenses                                          Add difference:
                                                                        Mortgage   . . . . . . . . . . . . . . . . . . . .       $6,000
                                                                        Minus: Installment sale basis. . . . . . . .             5,000        1,000
If the buyer pays any of your expenses related to the sale 
                                                                      Contract price. . . . . . . . . . . . . . . . . . . . . . . . . .      $4,000
of your property, it’s considered a payment to you in the 
year  of  sale.  Include  these  expenses  in  the  selling  and 
contract prices when figuring the gross profit percentage.            Your gross profit on the sale is also $4,000.
                                                                      Selling price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,000
Buyer Assumes Mortgage                                                Minus: Installment sale basis. . . . . . . . . . . . . . . . . . .      5,000
                                                                      Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $4,000
If the buyer assumes or pays off your mortgage, or other-
wise takes the property subject to the mortgage, the fol-             Your gross profit percentage is 100%. Report 100% of 
lowing rules apply.                                                   each payment (less interest) as gain from the sale. Treat 
                                                                      the $1,000 difference between the mortgage and your in-
Mortgage not more than basis.       If the buyer assumes a            stallment sale basis as a payment and report 100% of it as 
mortgage that isn’t more than your installment sale basis             gain in the year of sale.
in  the  property,  it  isn’t  considered  a  payment  to  you.  It’s 
considered a recovery of your basis. The contract price is 
the selling price minus the mortgage.                                 Mortgage Canceled

Example. You  sell  property  with  an  adjusted  basis  of           If the buyer of your property is the person who holds the 
$19,000. You have selling expenses of $1,000. The buyer               mortgage  on  it,  your  debt  is  canceled,  not  assumed. 
assumes your existing mortgage of $15,000 and agrees to               You’re considered to receive a payment equal to the out-
pay  you  $10,000  (a  cash  down  payment  of  $2,000  and           standing canceled debt.
$2,000 (plus 12% interest) in each of the next 4 years).
                                                                      Example.         Taylor Santiago loaned you $45,000 in 2019 
The selling price is $25,000 ($15,000 + $10,000). Your 
                                                                      in exchange for a note and a mortgage in a tract of land 
gross profit is $5,000 ($25,000 − $20,000 installment sale 
                                                                      you  owned.  On  April  1,  2023,  Taylor  bought  the  land  for 
basis). The contract price is $10,000 ($25,000 − $15,000 
                                                                      $70,000. At that time, $30,000 of their loan to you was out-
mortgage). Your gross profit percentage is 50% ($5,000 ÷ 
                                                                      standing. Taylor agreed to forgive this $30,000 debt and to 
$10,000).  You  report  half  of  each  $2,000  payment  re-
                                                                      pay  you  $20,000  (plus  interest)  on  August  1,  2023,  and 
ceived as gain from the sale. You also report all interest 
                                                                      $20,000 on August 1, 2024. Taylor didn’t assume an exist-
you receive as ordinary income.
                                                                      ing  mortgage  and  canceled  the  $30,000  debt  you  owed 
Mortgage  more  than  basis.   If  the  buyer  assumes  a             them. You’re considered to have received a $30,000 pay-
mortgage  that’s  more  than  your  installment  sale  basis  in      ment at the time of the sale.
the property, you recover your entire basis. The part of the 
mortgage greater than your basis is treated as a payment              Buyer Assumes Other Debts
received in the year of sale.
To figure the contract price, subtract the mortgage from              If the buyer assumes any other debts, such as a loan or 
the selling price. This is the total amount (other than inter-        back taxes, it may be considered a payment to you in the 
est)  you’ll  receive  directly  from  the  buyer.  Add  to  this     year of sale.
amount  the  payment  you’re  considered  to  have  received 
(the difference between the mortgage and your installment             If the buyer assumes the debt instead of paying it off, 
sale basis). The contract price is then the same as your              only part of it may have to be treated as a payment. Com-
gross profit from the sale.                                           pare the debt to your installment sale basis in the property 
                                                                      being sold. If the debt is less than your installment sale ba-
    If the mortgage the buyer assumes is equal to or 
                                                                      sis, none of it is treated as a payment. If it’s more, only the 
TIP more  than  your  installment  sale  basis,  the  gross 
                                                                      difference is treated as a payment. If the buyer assumes 
    profit percentage will always be 100%.
                                                                      more than one debt, any part of the total that’s more than 
                                                                      your  installment  sale  basis  is  considered  a  payment. 
Example. The selling price for your property is $9,000.               These  rules  are  the  same  as  the  rules  discussed  earlier 
The buyer will pay you $1,000 annually (plus 8% interest)             under Buyer Assumes Mortgage. However, they only ap-
over  the  next  3  years  and  will  assume  an  existing  mort-     ply to the following types of debt the buyer assumes.
gage  of  $6,000.  Your  adjusted  basis  in  the  property  is 
$4,400. You have selling expenses of $600, for a total in-            • Those acquired from ownership of the property you’re 
stallment sale basis of $5,000. The part of the mortgage                selling, such as a mortgage, lien, overdue interest, or 
that’s  more  than  your  installment  sale  basis  is  $1,000          back taxes.
($6,000 − $5,000). This amount is included in the contract            • Those acquired in the ordinary course of your busi-
price  and  treated  as  a  payment  received  in  the  year  of        ness, such as a balance due for inventory you pur-
sale. The contract price is $4,000.                                     chased.

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If the buyer assumes any other type of debt, such as a is subject to the market discount rules in sections 1276
personal loan or your legal fees relating to the sale, it’s and 1278.
treated as if the buyer had paid off the debt at the time of
the sale. The value of the assumed debt is then consid- Bond. A bond or other evidence of debt you receive from
ered a payment to you in the year of sale. the buyer that’s payable on demand or readily tradable in
an established securities market is treated as a payment
Property Used as a Payment in the year you receive it. For more information on the
amount you should treat as a payment, see Exception un-
der Property Used as a Payment, earlier.
If you receive property other than money from the buyer,
If you receive a government or corporate bond for a
it’s generally considered a payment in the year received.
sale before October 22, 2004, and the bond has interest
However, see Like-Kind Exchange, later.
coupons attached or can be readily traded in an estab-
lished securities market, you’re considered to have re-
Generally, the amount treated as payment is the prop-
ceived payment equal to the bond's FMV. However, see
erty's FMV on the date you receive it.
Exception under Property Used as a Payment, earlier.
Exception. If the buyer gives you a note that is paya-
ble on demand or readily tradable, the note is treated as a Buyer's note. The buyer's note (unless payable on de-
payment in the year received. If treating the note as a cur- mand or readily tradable) isn’t considered payment on the
rent payment causes the sale not to be an installment sale. However, its full face value is included when figuring
sale, determine the amount realized under Regulations the selling price and the contract price. The selling price
section 1.1001-1(g). If the note that is payable on demand should be reduced by any OID or unstated interest. Pay-
or readily tradable is received as a payment in an install- ments you receive on the note are used to figure your gain
ment sale, the amount you should consider as payment in in the year received.
the year received generally is:
Installment Obligation Used as Security
• If you use the cash method of accounting, the FMV of
the note on the date you receive it; (Pledge Rule)

• If you use the accrual method of accounting and the If you use an installment obligation to secure any debt, the
note is payable on demand, the face amount of the net proceeds from the debt may be treated as a payment
obligation on the date you receive it; or on the installment obligation. This is known as the pledge
• If you use an accrual method of accounting and the rule, and it applies if the selling price of the property is
note is readily tradable, the stated redemption price at over $150,000. It doesn’t apply to the following disposi-
maturity less any OID or, if there’s no OID, the stated tions.
redemption price at maturity appropriately discounted • Sales of property used or produced in farming.
to reflect total unstated interest. See Unstated Interest
• Sales of personal-use property.
and Original Issue Discount (OID), later.
• Qualifying sales of timeshares and residential lots.
Debt not payable on demand or readily tradable. Any
evidence of debt you receive from the buyer that is not The net debt proceeds are the gross debt minus the di-
payable on demand or readily tradable generally isn’t con- rect expenses of getting the debt. The amount treated as
sidered a payment. This is true even if the debt is guaran- a payment is considered received on the later of the fol-
teed by a third party, including a government agency. lowing dates.
Third-party note. If the property the buyer gives you is a • The date the debt becomes secured.
third-party note (or other obligation of a third party), you’re • The date you receive the debt proceeds.
considered to have received a payment equal to the note's
FMV. Because the FMV of the note is itself a payment on A debt is secured by an installment obligation to the ex-
your installment sale, any payments you later receive from tent that payment of principal or interest on the debt is di-
the third party aren’t considered payments on the sale. rectly secured (under the terms of the loan or any underly-
The excess of the note's face value over its FMV is market ing arrangement) by any interest in the installment
discount that is subject to the market discount rules under obligation.
sections 1276 and 1278. Exclude this market discount in
determining the selling price of the property. However, see For sales after December 16, 1999, payment on a debt
Exception under Property Used as a Payment, earlier. is treated as directly secured by an interest in an install-
ment obligation to the extent an arrangement allows you to
Example. You sold real estate in an installment sale. satisfy all or part of the debt with the installment obliga-
As part of the down payment, the buyer assigned to you a tion.
$50,000, 8% interest third-party note. The FMV of the
third-party note at the time of the sale was $30,000. This Limit. The net debt proceeds treated as a payment on
amount, not $50,000, is a payment to you in the year of the pledged installment obligation can’t be more than the
sale. The excess of the $50,000 face value of the note excess of item (1) over item (2) below.
over the $30,000 FMV, or $20,000, is market discount that 1. The total contract price on the installment sale.

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2. Any payments received on the installment obligation definite restriction placed on the seller or a specific eco-
before the date the net debt proceeds are treated as a nomic benefit conferred on the buyer.
payment.
Installment payments. The pledge rule accelerates the Depreciation Recapture Income
reporting of the installment obligation payments. Don’t re-
port payments received on the obligation after it’s been If you sell property for which you claimed or could have
pledged until the payments received exceed the amount claimed a depreciation deduction, you must report any de-
reported under the pledge rule. preciation recapture income in the year of sale, whether or
not an installment payment was received that year. Figure
Exception. The pledge rule doesn’t apply to pledges your depreciation recapture income (including the section
made after December 17, 1987, to refinance a debt under 179 deduction and the section 179A deduction recapture)
the following circumstances. in Part III of Form 4797. Report the recapture income in
• The debt was outstanding on December 17, 1987. Part II of Form 4797 as ordinary income in the year of sale.
The recapture income is also included in Part I of Form
• The debt was secured by that installment sale obliga- 6252. However, the gain equal to the recapture income is
tion on that date and at all times thereafter until the re- reported in full in the year of the sale. Only the gain
financing occurred. greater than the recapture income is reported on the in-
A refinancing as a result of the creditor's calling of the stallment method. For more information on depreciation
debt is treated as a continuation of the original debt so recapture, see chapter 3 of Pub. 544.
long as a person other than the creditor or a person rela-
ted to the creditor provides the refinancing. The recapture income reported in the year of sale is in-
This exception applies only to refinancing that doesn’t cluded in your installment sale basis in determining your
exceed the principal of the original debt immediately be- gross profit on the installment sale. Determining gross
fore the refinancing. Any excess is treated as a payment profit is discussed under General Rules, earlier.
on the installment obligation.
Sale to a Related Person
Escrow Account
If you sell depreciable property to a related person and the
In some cases, the sales agreement or a later agreement sale is an installment sale, you may not be able to report
may call for the buyer to establish an irrevocable escrow the sale using the installment method. If you sell property
account from which the remaining installment payments to a related person and the related person disposes of the
(including interest) are to be made. These sales can’t be property before you receive all payments with respect to
reported on the installment method. The buyer's obligation the sale, you may have to treat the amount realized by the
is paid in full when the balance of the purchase price is related person as received by you when the related per-
deposited into the escrow account. When an escrow ac- son disposes of the property. These rules are explained
count is established, you no longer rely on the buyer for under Sale of Depreciable Property and under Sale and
the rest of the payments, but on the escrow arrangement. Later Disposition, later.

Example. You sell property for $100,000. The sales Sale of Depreciable Property
agreement calls for a down payment of $10,000 and pay-
ment of $15,000 in each of the next 6 years to be made If you sell depreciable property to certain related persons,
from an irrevocable escrow account containing the bal- you generally can’t report the sale using the installment
ance of the purchase price plus interest. You can’t report method. Instead, all payments to be received are consid-
the sale on the installment method because the full pur- ered received in the year of sale. However, see Exception
chase price is considered received in the year of sale. You below. Depreciable property for this rule is any property
report the entire gain in the year of sale. the purchaser can depreciate.
Escrow established in a later year. If you make an in-
stallment sale and in a later year an irrevocable escrow Payments to be received include the total of all noncon-
account is established to pay the remaining installments tingent payments and the FMV of any payments contin-
plus interest, the amount placed in the escrow account gent as to amount.
represents payment of the balance of the installment obli-
gation. In the case of contingent payments for which the FMV
can’t be reasonably determined, your basis in the property
Substantial restriction. If an escrow arrangement impo- is recovered proportionately. The purchaser can’t increase
ses a substantial restriction on your right to receive the the basis of the property acquired in the sale before the
sale proceeds, the sale can be reported on the installment seller includes a like amount in income.
method, provided it otherwise qualifies. For an escrow ar-
rangement to impose a substantial restriction, it must Exception. You can use the installment method to report
serve a bona fide purpose of the buyer, that is, a real and a sale of depreciable property to a related person if no sig-
nificant tax deferral benefit will be derived from the sale.

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You must show to the satisfaction of the IRS that avoid- • An individual and a corporation when the individual
ance of federal income tax wasn’t one of the principal pur- owns, directly or indirectly, more than 50% of the value
poses of the sale. of the outstanding stock of the corporation.
Related person. Related persons include the following. • A fiduciary of a trust and a corporation when the trust
or the grantor of the trust owns, directly or indirectly,
• A person and all controlled entities with respect to that more than 50% in value of the outstanding stock of the
person. corporation.
• A taxpayer and any trust in which such taxpayer (or • The grantor and fiduciary, and the fiduciary and bene-
taxpayer’s spouse) is a beneficiary, unless that benefi- ficiary, of any trust.
ciary's interest in the trust is a remote contingent inter-
est. • Any two S corporations if the same persons own more
than 50% in value of the outstanding stock of each
• Except in the case of a sale or exchange in satisfac- corporation.
tion of a pecuniary bequest, an executor of an estate
and a beneficiary of that estate. • An S corporation and a corporation that isn’t an S cor-
poration if the same persons own more than 50% in
• Two or more partnerships in which the same person value of the outstanding stock of each corporation.
owns, directly or indirectly, more than 50% of the capi-
tal interests or the profits interests. • A corporation and a partnership if the same persons
own more than 50% in value of the outstanding stock
For information about which entities are controlled enti- of the corporation and more than 50% of the capital or
ties, see section 1239(c). profits interest in the partnership.
Sale and Later Disposition • An executor and a beneficiary of an estate unless the
sale is in satisfaction of a pecuniary bequest.
Generally, a special rule applies if you sell or exchange
property to a related person on the installment method Example 1. In 2022, you sold farm land to your child
(first disposition) who then sells, exchanges, or gives away Adrian for $500,000, which was to be paid in five equal
the property (second disposition) under the following cir- payments over 5 years, plus adequate stated interest on
cumstances. the balance due. Your installment sale basis for the farm-
land was $250,000 and the property wasn’t subject to any
• The related person makes the second disposition be- outstanding liens or mortgages. Your gross profit percent-
fore making all payments on the first disposition. age is 50% (gross profit of $250,000 ÷ contract price of
• The related person disposes of the property within 2 $500,000). You received $100,000 in 2022 and included
years of the first disposition. This rule doesn’t apply if $50,000 in income for that year ($100,000 × 0.50). Adrian
the property involved is marketable securities. made no improvements to the property and sold it to Al-
falfa Inc. in 2023 for $600,000 after making the payment
Under this rule, you treat part or all of the amount the rela- for that year. The amount realized from the second dispo-
ted person realizes (or the FMV if the disposed property sition is $600,000. You figured your installment sale in-
isn’t sold or exchanged) from the second disposition as if come for 2023 as follows.
you received it at the time of the second disposition.
Lesser of: 1) Amount realized on second disposition,
See Exception, later. or 2) Contract price on first disposition. . . . . . . . . $500,000
Related person. Related persons include the following. Subtract: Sum of payments from Adrian in 2022 and
2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . − 200,000
• Members of a family, including only brothers and sis- Amount treated as received because of second
ters (either whole or half), two people married to each disposition . . . . . . . . . . . . . . . . . . . . . . . . . $300,000
other, ancestors, and lineal descendants. Add: Payment from Adrian in 2023 . . . . . . . . . . . . + 100,000
• A partnership or estate and a partner or beneficiary. Total payments received and treated as received for
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $400,000
• A trust (other than a section 401(a) employees trust)
and a beneficiary. Multiply by gross profit %. . . . . . . . . . . . . . . . . × 0.50
Installment sale income for 2023. . . . . . . . . . . . . $200,000
• A trust and an owner of the trust.
• Two corporations that are members of the same con- You won’t include in your installment sale income any
trolled group as defined in section 267(f). principal payments you receive on the installment obliga-
tion for 2024, 2025, and 2026 because you already repor-
• The fiduciaries of two different trusts, and the fiduciary ted the total payments of $500,000 from the first disposi-
and beneficiary of two different trusts, if the same per- tion ($100,000 in 2022 and $400,000 in 2023).
son is the grantor of both trusts.
• A tax-exempt educational or charitable organization Example 2. Assume the facts are the same as Exam-
and a person (if an individual, including members of ple 1, except that Adrian sells the property for only
the individual's family) who directly or indirectly con- $400,000. The gain for 2023 is figured as follows.
trols such an organization.

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Lesser of: 1) Amount realized on second                                   Like-Kind Exchange
disposition, or 2) Contract price on first 
disposition. . . . . . . . . . . . . . . . . . . . . . . . . .  $400,000  If you trade business or investment real property solely for 
Subtract: Sum of payments from Adrian in 2022 and                         other business or investment real property of a like kind, 
2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . − 200,000 you can postpone reporting the gain from the trade. These 
Amount treated as received because of second                              trades  are  known  as  like-kind  exchanges.  The  property 
disposition  . . . . . . . . . . . . . . . . . . . . . . . . .  $200,000  you receive in a like-kind exchange is treated as if it were a 
Add: Payment from Adrian in 2023        . . . . . . . . . . .   + 100,000 continuation of the property you gave up. A trade is not a 
Total payments received and treated as received for                       like-kind exchange if the property you trade or the property 
2023  . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $300,000  you receive is property you hold primarily for sale to cus-
Multiply by gross profit %. . . . . . . . . . . . . . . . .     × 0.50    tomers.
Installment sale income for 2023. . . . . . . . . . . .         $150,000  You don’t have to report any part of your gain if you re-
                                                                          ceive only like-kind property. However, if you also receive 
                                                                          money or other property (boot) in the exchange, you must 
You receive a $100,000 payment in 2024 and another 
                                                                          report your gain to the extent of the money and the FMV of 
in  2025.  They  aren’t  taxed  because  you  treated  the 
                                                                          the other property received.
$200,000  from  the  disposition  in  2023  as  a  payment  re-
ceived  and  paid  tax  on  the  installment  sale  income.  In           For  more  information  on  like-kind  exchanges,  see 
2026, you receive the final $100,000 payment. You figure                  Like-Kind Exchanges in chapter 1 of Pub. 544.
the installment sale income you must recognize in 2026 as 
follows.                                                                  Installment  payments. If,  in  addition  to  like-kind  prop-
                                                                          erty, you receive an installment obligation in the exchange, 
Total payments from the first disposition received by                     the following rules apply to determine the installment sale 
the end of 2026 . . . . . . . . . . . . . . . . . . . . . . . . $500,000  income each year.
Minus the sum of:                                                         • The contract price is reduced by the FMV of the 
Payment from 2022. . . . . . . . . .                 $100,000               like-kind property received in the trade.
Payment from 2023. . . . . . . . . .                  100,000
Amount treated as received in                                             • The gross profit is reduced by any gain on the trade 
2023  . . . . . . . . . . . . . . . . . . .           200,000               that can be postponed.
Total on which gain was previously recognized. . . .            − 400,000 • Like-kind property received in the trade isn’t consid-
Payment on which gain is recognized for 2026. . . . .           $100,000    ered payment on the installment obligation.
Multiply by gross profit %. . . . . . . . . . . . . . . . . .   × 0.50
Installment sale income for 2026. . . . . . . . . . . . .       $50,000   Example. In 2023, you trade real property with an in-
                                                                          stallment sale basis of $400,000 for like-kind property hav-
Exception.     This rule doesn’t apply to a second disposi-               ing an FMV of $200,000. You also receive an installment 
tion, and any later transfer, if you can show to the satisfac-            note  for  $800,000  in  the  trade.  Under  the  terms  of  the 
tion of the IRS that neither the first disposition (to the rela-          note, you are to receive $100,000 (plus interest) in 2024 
ted person) nor the second disposition had as one of its                  and the balance of $700,000 (plus interest) in 2025.
principal  purposes  the  avoidance  of  federal  income  tax.            Your  selling  price  is  $1,000,000  ($800,000  installment 
Generally,  an  involuntary  second  disposition  will  qualify           note + $200,000 FMV of like-kind property received). Your 
under  the  nontax  avoidance  exception,  such  as  when  a              gross  profit  is  $600,000  ($1,000,000  −  $400,000  install-
creditor of the related person forecloses on the property or              ment  sale  basis).  The  contract  price  is  $800,000 
the related person declares bankruptcy.                                   ($1,000,000 − $200,000). The gross profit percentage is 
The nontax avoidance exception also applies to a sec-                     75% ($600,000 ÷ $800,000). You report no gain in 2023 
ond disposition that’s also an installment sale if the terms              because the like-kind property you receive isn’t treated as 
of payment under the installment resale are substantially                 a  payment  for  figuring  gain.  You  report  $75,000  gain  for 
equal to or longer than those for the first installment sale.             2024 (75% of $100,000 payment received) and $525,000 
However, the exception doesn’t apply if the resale terms                  gain for 2025 (75% of $700,000 payment received).
permit  significant  deferral  of  recognition  of  gain  from  the 
                                                                          Deferred  exchanges. A  deferred  exchange  is  one  in 
first sale.
                                                                          which you transfer property you use in business or hold for 
In addition, any sale or exchange of stock to the issuing 
                                                                          investment and receive like-kind property later that you’ll 
corporation isn’t treated as a first disposition. An involun-
                                                                          use in business or hold for investment. Under this type of 
tary conversion isn’t treated as a second disposition if the 
                                                                          exchange, the person receiving your property may be re-
first disposition occurred before the threat of conversion. A 
                                                                          quired to place funds in an escrow account or trust. If cer-
transfer after the death of the person making the first dis-
                                                                          tain rules are met, these funds won’t be considered a pay-
position or the related person's death, whichever is earlier, 
                                                                          ment  until  you  have  the  right  to  receive  the  funds  or,  if 
isn’t treated as a second disposition.
                                                                          earlier, the end of the exchange period. See Regulations 
                                                                          section 1.1031(k)-1(j)(2) for these rules.

                                                                          Exchanges started in and completed after 2017.      Un-
                                                                          der the Tax Cuts and Jobs Act, a trade is not a like-kind 

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exchange unless the taxpayer trades and receives real Of the total $130,000 selling price, you must allocate
property, other than real property held primarily for sale. $120,000 to parcels A and B together and $10,000 to par-
Before enactment of the new tax law, certain exchanges of cel C. You should allocate the cash payment of $20,000
personal or intangible property qualified as like-kind ex- received in the year of sale and the note receivable on the
changes. basis of their proportionate net FMVs. The allocation is fig-
ured as follows.
Contingent Payment Sale
Parcels
A contingent payment sale is one in which the total selling A and B Parcel C
price can’t be determined by the end of the tax year of FMV . . . . . . . . . . . . . . . . . . . . . $120,000 $10,000
Minus: Mortgage assumed . . . . . . . 30,000 -0-
sale. This happens, for example, if you sell your business
and the selling price includes a percentage of its profits in Net FMV. . . . . . . . . . . . . . . . . . . $90,000 $10,000
future years.
Proportionate net FMV:
If the selling price can’t be determined by the end of the Percentage of total . . . . . . . . . . . . 90% 10%
tax year, you must use different rules to figure the contract
price and the gross profit percentage than those you use Payments in year of sale:
for an installment sale with a fixed selling price. $20,000 × 90% (0.90). . . . . . . . . . . $18,000
$20,000 × 10% (0.10). . . . . . . . . . . $2,000
For rules on using the installment method for a contin-
gent payment sale, see Regulations section 15a.453-1(c). Excess of parcel B mortgage over
installment sale basis. . . . . . . . . . . 15,000 -0-

Single Sale of Several Assets Allocation of payments
received (or considered
If you sell different types of assets in a single sale, you received) in year of sale. . . . . . . . . $33,000 $2,000
must identify each asset to determine whether you can
use the installment method to report the sale of that asset. You can’t report the sale of parcel C on the installment
You also have to allocate part of the selling price to each method because the sale results in a loss. You report this
asset. If you sell assets that constitute a trade or business, loss of $5,000 ($10,000 selling price − $15,000 install-
see Sale of a Business, later. ment sale basis) in the year of sale. However, if parcel C
Unless an allocation of the selling price has been was held for personal use, the loss isn’t deductible.
agreed to by both parties in an arm's-length transaction, You allocate the installment obligation of $80,000 to the
you must allocate the selling price to an asset based on its properties sold based on their proportionate net FMVs
FMV. If the buyer assumes a debt, or takes the property (90% to parcels A and B, 10% to parcel C).
subject to a debt, you must reduce the FMV of the prop-
erty by the debt. This becomes the net FMV. Sale of a Business
A sale of separate and unrelated assets of the same
type under a single contract is reported as one transaction The installment sale of an entire business for one overall
for the installment method. However, if an asset is sold at price under a single contract isn’t the sale of a single as-
a loss, its disposition can’t be reported on the installment set.
method. It must be reported separately. The remaining as-
sets sold at a gain are reported together. Allocation of Selling Price

Example. You sold three separate and unrelated par- To determine whether any of the gain on the sale of the
cels of real property (A, B, and C) under a single contract business can be reported on the installment method, you
calling for a total selling price of $130,000. The total sell- must allocate the total selling price and the payments re-
ing price consisted of a cash payment of $20,000, the ceived in the year of sale between each of the following
buyer's assumption of a $30,000 mortgage on parcel B, classes of assets.
and an installment obligation of $80,000 payable in eight
annual installments, plus interest at 8% a year. 1. Assets sold at a loss.
Your installment sale basis for each parcel was 2. Real and personal property eligible for the installment
$15,000. Your net gain was $85,000 ($130,000 − method.
$45,000). You report the gain on the installment method.
The sales contract didn’t allocate the selling price or the 3. Real and personal property ineligible for the install-
cash payment received in the year of sale among the indi- ment method, including:
vidual parcels. The FMV of parcels A, B, and C were a. Inventory,
$60,000, $60,000, and $10,000, respectively.
The installment sale basis for parcel C was more than b. Dealer property, and
its FMV, so it was sold at a loss and must be treated sepa- c. Stocks and securities.
rately. You must allocate the total selling price and the
amounts received in the year of sale between parcel C Inventory. The sale of inventories of personal property
and the remaining parcels. can’t be reported on the installment method. All gain or

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loss on their sale must be reported in the year of sale, 6. Goodwill and going concern value (whether or not
even if you receive payment in later years. they qualify as section 197 intangibles).
If inventory items are included in an installment sale,
If an asset described in (1) through (6) is includible in
you may have an agreement stating which payments are
more than one category, include it in the lower number
for inventory and which are for the other assets being sold.
category. For example, if an asset is described in both (4)
If you don’t, each payment must be allocated between the
and (6), include it in (4).
inventory and the other assets sold.
Report the amount you receive (or will receive) on the Agreement. The buyer and seller may enter into a written
sale of inventory items as ordinary business income. Use agreement as to the allocation of any consideration or the
your basis in the inventory to figure the cost of goods sold. FMV of any of the assets. This agreement is binding on
Deduct the part of the selling expenses allocated to inven- both parties unless the IRS determines the amounts aren’t
tory as an ordinary business expense. appropriate.

Residual method. Except for assets exchanged under Reporting requirement. Both the buyer and seller in-
the like-kind exchange rules, both the buyer and seller of a volved in the sale of business assets must report to the
business must use the residual method to allocate the IRS the allocation of the sales price among section 197 in-
sale price to each business asset sold. This method deter- tangibles and the other business assets. Use Form 8594
mines gain or loss from the transfer of each asset and the to provide this information. The buyer and seller should
buyer's basis in the assets. each attach Form 8594 to their federal income tax return
The residual method must be used for any transfer of a for the year in which the sale occurred.
group of assets that constitutes a trade or business and
for which the buyer's basis is determined only by the
Sale of Partnership Interest
amount paid for the assets. This applies to both direct and
indirect transfers, such as the sale of a business or the A partner who sells a partnership interest at a gain may be
sale of a partnership interest in which the basis of the buy- able to report the sale on the installment method. The sale
er's share of the partnership assets is adjusted for the of a partnership interest is treated as the sale of a single
amount paid under section 743(b). capital asset. The part of any gain or loss from unrealized
A group of assets constitutes a trade or business if receivables or inventory items will be treated as ordinary
goodwill or going concern value could, under any circum- income. (The term “unrealized receivables” includes in-
stances, attach to the assets or if the use of the assets come arising from compensation for services and depreci-
would constitute an active trade or business under section ation recapture income, discussed earlier.)
355.
The residual method provides for the consideration to The gain allocated to the unrealized receivables and
be reduced first by cash and general deposit accounts (in- the inventory can’t be reported under the installment
cluding checking and savings accounts but excluding cer- method. The gain allocated to the other assets can be re-
tificates of deposit). The consideration remaining after this ported under the installment method.
reduction must be allocated among the various business
assets in a certain order. For more information on the treatment of unrealized re-
For asset acquisitions occurring after March 15, 2001, ceivables and inventory, see Pub. 541.
make the allocation among the following assets in propor-
tion to (but not more than) their FMVs on the purchase Example—Sale of a Business
date in the following order.
On June 4, 2023, you sold the machine shop you’d oper-
1. Certificates of deposit, U.S. Government securities, ated since 2014. You received a $100,000 down payment
foreign currency, and actively traded personal prop- and the buyer's note for $120,000. The note payments are
erty, including stock and securities. $15,000 each, plus 10% interest, due every July 1 and
2. Accounts receivable, other debt instruments, and as- January 1, beginning in 2024. The total selling price is
sets that you mark to market at least annually for fed- $220,000. Your selling expenses are $11,000.
eral income tax purposes. However, see Regulations
The selling expenses are divided among all the assets
section 1.338-6(b)(2)(iii) for exceptions that apply to
sold, including inventory. Your selling expense for each as-
debt instruments issued by persons related to a target
set is 5% of the asset's selling price ($11,000 selling ex-
corporation, contingent debt instruments, and debt in-
pense ÷ $220,000 total selling price).
struments convertible into stock or other property.
3. Property of a kind that would properly be included in The FMV, adjusted basis, and depreciation claimed on
inventory if on hand at the end of the tax year or prop- each asset sold are as follows.
erty held by the taxpayer primarily for sale to custom-
ers in the ordinary course of business.
4. All other assets except section 197 intangibles.
5. Section 197 intangibles except goodwill and going
concern value.

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                                            Depre-                                                                            Install-
                                            ciation  Adj.                                                                       ment
Asset                               FMV     Claimed  Basis                                                Selling                  Sale       Gross
                                                                                                              Price             Basis          Profit
Inventory. . . . . . . . .   $10,000        -0-      $8,000        Land . . . . . . . . . . . .           $42,000             $17,100         $24,900
Land . . . . . . . . . . . .        42,000  -0-      15,000        Building. . . . . . . . . . .            48,000              38,400        9,600
Building. . . . . . . . . .         48,000  $9,000   36,000        Goodwill . . . . . . . . . .             18,500                  925       17,575
Machine A. . . . . . . .            71,000  27,200   63,800
Machine B. . . . . . . .            24,000  12,960   22,040        Total. . . . . . . . . . . . .       $108,500              $56,425         $52,075
Truck. . . . . . . . . . . .        6,500   18,624   5,376
Total. . . . . . . . . . . . $201,500       $67,784  $150,216
                                                                   The  gross  profit  percentage  (gross  profit  ÷  contract 
                                                                   price)  for  the  installment  sale  is  48%  ($52,075  ÷ 
Under  the  residual  method,  you  allocate  the  selling         $108,500). The gross profit percentage for each asset is 
price  to  each  of  the  assets  based  on  their  FMV            figured as follows.
($201,500).  The  remaining  $18,500  ($220,000  – 
$201,500)  is  allocated  to  your  section  197  intangible                                                                              Percentage
goodwill.                                                          Land— $24,900 ÷ $108,500. . . . . . . . . . . . . . . . . . . .            22.95
                                                                   Building— $9,600 ÷ $108,500        . . . . . . . . . . . . . . . . . . .   8.85
The  assets  included  in  the  sale,  their  selling  prices      Goodwill— $17,575 ÷ $108,500. . . . . . . . . . . . . . . . . .            16.20
based  on  their  FMVs,  the  selling  expense  allocated  to      Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.00
each asset, the adjusted basis, and the gain for each as-
set are shown in the following chart.
                                                                   The  sale  includes  assets  sold  on  the  installment 
                                                                   method and assets for which the gain is reported in full in 
                             Sale   Sale    Adj.
                             Price  Exp.    Basis    Gain          the year of sale, so payments must be allocated between 
                                                                   the installment part of the sale and the part reported in the 
Inventory. . . . .         $10,000  $500    $8,000   $1,500        year  of  sale.  The  selling  price  for  the  installment  sale  is 
Land . . . . . . .           42,000 2,100   15,000   24,900        $108,500.  This  is  49.3%  of  the  total  selling  price  of 
Building. . . . . .          48,000 2,400   36,000   9,600
Mch. A . . . . . .           71,000 3,550   63,800   3,650         $220,000 ($108,500 ÷ $220,000). The selling price of as-
Mch. B . . . . . .           24,000 1,200   22,040   760           sets not reported on the installment method is $111,500. 
Truck. . . . . . .           6,500  325     5,376    799           This  is  50.7%  ($111,500  ÷  $220,000)  of  the  total  selling 
Goodwill . . . . .           18,500 925     -0-      17,575        price.
Total. . . . . . . .     $220,000   $11,000 $150,216 $58,784
                                                                   Multiply principal payments by 49.3% (0.493) to deter-
                                                                   mine the part of the payment for the installment sale. The 
The building was acquired in 2014, the year the busi-
                                                                   balance, 50.7%, is for the part reported in the year of the 
ness began, and it’s section 1250 property. There’s no de-
                                                                   sale.
preciation recapture income because the building was de-
preciated using the straight line method.                          The  gain  on  the  sale  of  the  inventory,  machines,  and 
                                                                   truck is reported in full in the year of sale. When you re-
All gain on the truck, machine A, and machine B is de-
                                                                   ceive principal payments in later years, no part of the pay-
preciation recapture income since it’s the lesser of the de-
                                                                   ment for the sale of these assets is included in gross in-
preciation claimed or the gain on the sale. Figure depreci-
                                                                   come.  Only  the  part  for  the  installment  sale  (49.3%)  is 
ation recapture in Part III of Form 4797.
                                                                   used in the installment sale computation.
The  total  depreciation  recapture  income  reported  in 
                                                                   The  only  payment  received  in  2023  is  the  down  pay-
Part II of Form 4797 is $5,209. This consists of $3,650 on 
                                                                   ment of $100,000. The part of the payment for the install-
machine  A,  $799  on  the  truck,  and  $760  on  machine  B 
                                                                   ment  sale  is  $49,300  ($100,000  ×  49.3%  (0.493)).  This 
(the gain on each item because it was less than the depre-
                                                                   amount is used in the installment sale computation.
ciation  claimed).  These  gains  are  reported  in  full  in  the 
year  of  sale  and  aren’t  included  in  the  installment  sale  Installment  income  for  2023.                  Your  installment  income 
computation.                                                       for each asset is the gross profit percentage for that asset 
                                                                   times $49,300, the installment income received in 2023.
Of the $220,000 total selling price, the $10,000 for in-
ventory  assets  can’t  be  reported  using  the  installment 
                                                                                                                                              Income
method. The selling prices of the truck and machines are 
also removed from the total selling price because gain on          Land—22.95% of $49,300. . . . . . . . . . . . . . . . . .                  $11,314
these items is reported in full in the year of sale.               Building—8.85% of $49,300. . . . . . . . . . . . . . . . .                 4,363
                                                                   Goodwill—16.2% of $49,300          . . . . . . . . . . . . . . . .         7,987
The  selling  price  equals  the  contract  price  for  the  in-   Total installment income for 2023. . . . . . . . . . . . . .               $23,664
stallment sale ($108,500). The assets included in the in-
stallment sale, their selling price, and their installment sale    Installment  income  after  2023.                    You  figure  installment 
bases are shown in the following chart.                            income for years after 2023 by applying the same gross 

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profit percentages to 49.3% of the total payments you re- Rules for the buyer. Any part of the stated selling
ceive on the buyer's note during the year. price of an installment sale contract treated by the buyer
as interest reduces the buyer's basis in the property and
Unstated Interest and Original Issue increases the buyer's interest expense. These rules don’t
apply to personal-use property (for example, property not
Discount (OID) used in a trade or business).

An installment sale contract may provide that each defer- Adequate stated interest. An installment sale contract
red payment on the sale will include interest or that there generally provides for adequate stated interest if the con-
will be an interest payment in addition to the principal pay- tract's stated principal amount is less than or equal to the
ment. Interest provided in the contract is called stated in- sum of the present values of all principal and interest pay-
terest. ments called for under the contract. The present value of a
If an installment sale contract doesn’t provide for ade- payment is determined based on the test rate of interest,
quate stated interest, part of the stated principal amount defined next. (If section 483 applies to the contract, pay-
of the contract may be recharacterized as interest. If sec- ments due within 6 months after the sale are taken into ac-
tion 483 applies to the contract, this interest is called un- count at face value.) In general, an installment sale con-
stated interest. If section 1274 applies to the contract, this tract provides for adequate stated interest if the stated
interest is called OID. interest rate (based on an appropriate compounding pe-
riod) is at least equal to the test rate of interest.
An installment sale contract doesn’t provide for ade-
quate stated interest if the stated interest rate is lower than Test rate of interest. The test rate of interest for a
the test rate. See Test rate of interest, later. contract is the 3-month rate. The 3-month rate is the lower
of the following applicable federal rates (AFRs).
Treatment of unstated interest and OID. Generally, if a
• The lowest AFR (based on the appropriate com-
buyer gives a debt in consideration for personal-use prop-
pounding period) in effect during the 3-month period
erty, the unstated interest rules under section 483 and the
ending with the first month in which there’s a binding
OID rules under section 1274 don’t apply to the buyer. As
written contract that substantially provides the terms
a result, the buyer can’t deduct the unstated interest or
under which the sale or exchange is ultimately com-
OID. The seller must report the unstated interest or OID as
pleted.
income.
Personal-use property is any property in which sub- • The lowest AFR (based on the appropriate com-
stantially all of its use by the buyer isn’t in connection with pounding period) in effect during the 3-month period
a trade or business or an investment activity. ending with the month in which the sale or exchange
If the debt is subject to the section 483 rules and is also occurs.
subject to the below-market loan rules, such as a gift loan,
Applicable federal rate (AFR). The AFR depends on
compensation-related loan, or corporation-shareholder
the month the binding contract for the sale or exchange of
loan, then both parties are subject to the below-market
property is made or the month of the sale or exchange and
loan rules rather than the unstated interest rules.
the term of the instrument. For an installment obligation,
Rules for the seller. If either section 1274 or section the term of the instrument is its weighted average maturity,
483 applies to the installment sale contract, you must treat as defined in Regulations section 1.1273-1(e)(3). The
part of the installment sale price as interest, even if stated AFR for each term is shown below.
interest isn’t called for in the sales agreement. If either • For a term of 3 years or less, the AFR is the federal
section applies, you must reduce the stated selling price short-term rate.
of the property and increase your interest income by this
unstated interest or OID. • For a term of over 3 years, but not over 9 years, the
Include any unstated interest in income based on your AFR is the federal mid-term rate.
regular method of accounting. Include any OID in income • For a term of over 9 years, the AFR is the federal
over the term of the contract. long-term rate.
The OID includible in income each year is based on the
constant yield method described in section 1272. (In The AFRs are published monthly in the Internal
some cases, the OID on an installment sale contract may Revenue Bulletin (IRB). You can get this informa-
also include all or part of the stated interest, especially if tion at IRS.gov/ApplicableFederalRates.
the stated interest isn’t paid at least annually.)
If you don’t use the installment method to report the Seller-financed sales. For sales or exchanges of
sale, report the entire gain under your method of account- property (other than new section 38 property, which in-
ing in the year of sale. Reduce the selling price by any sta- cludes most tangible personal property subject to depreci-
ted principal treated as interest to determine the gain. ation) involving seller financing of $6,734,800 or less, the
Report unstated interest or OID on your tax return, in test rate of interest can’t be more than 9%, compounded
addition to stated interest (without double-counting any semiannually.
stated interest treated as OID). For information on new section 38 property, see section
48(b) as in effect before the enactment of Public Law
101-508.

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Certain land transfers between related persons. In 3. Section 1274 would apply except for the election in (2)
the case of certain land transfers between related persons above.
(described later), the test rate is no more than 6%, com-
pounded semiannually. Land transfers between related persons. The section
483 rules (discussed next) apply to debt instruments is-
Internal Revenue Code sections 1274 and 483. If an sued in a land sale between related persons to the extent
installment sale contract doesn’t provide for adequate sta- the sum of the following amounts doesn’t exceed
ted interest, generally either section 1274 or section 483 $500,000.
will apply to the contract. These sections recharacterize The stated principal of the debt instrument issued in
•
part of the stated principal amount as interest. Whether ei- the sale or exchange.
ther of these sections applies to a particular installment
sale contract depends on several factors, including the to- • The total stated principal of any other debt instruments
tal selling price and the type of property sold. for prior land sales between these individuals during
the calendar year.
Determining whether section 1274 or section 483
applies. For purposes of determining whether section The section 1274 rules, if otherwise applicable, apply to
1274 or section 483 applies to an installment sale con- debt instruments issued in a sale of land to the extent the
tract, all sales or exchanges that are part of the same stated principal amount exceeds $500,000, or if any party
transaction (or related transactions) are treated as a single to the sale is a nonresident alien.
sale or exchange and all contracts arising from the same Related persons include an individual and the mem-
transaction (or a series of related transactions) are treated bers of the individual's family and their spouses. Members
as a single contract. Also, the total consideration due un- of an individual's family include the individual's spouse,
der an installment sale contract is determined at the time brothers and sisters (whole or half), ancestors, and lineal
of the sale or exchange. Any payment (other than a debt descendants. Membership in the individual's family can be
instrument) is taken into account at its FMV. the result of a legal adoption.

Section 1274 Section 483

Section 1274 applies to a debt instrument issued for the Section 483 generally applies to an installment sale con-
sale or exchange of property if any payment under the in- tract that doesn’t provide for adequate stated interest and
strument is due more than 6 months after the date of the isn’t covered by section 1274. Section 483, however, gen-
sale or exchange and the instrument doesn’t provide for erally doesn’t apply to an installment sale contract that ari-
adequate stated interest. Section 1274, however, doesn’t ses from the following transactions.
apply to an installment sale contract that’s a cash method • A sale or exchange for which no payments are due
debt instrument (defined next) or that arises from the fol- more than 1 year after the date of the sale or ex-
lowing transactions. change.
• A sale or exchange for which the total payments are • A sale or exchange for $3,000 or less.
$250,000 or less.
• The sale or exchange of an individual's main home. Exceptions to Sections
1274 and 483
• The sale or exchange of a farm for $1 million or less by
an individual, an estate, a testamentary trust, a small Sections 1274 and 483 don’t apply under the following cir-
business corporation (defined in section 1244(c)(3)), cumstances.
or a domestic partnership that meets requirements
similar to those of section 1244(c)(3). • An assumption of a debt instrument in connection with
a sale or exchange or the acquisition of property sub-
• Certain land transfers between related persons (de- ject to a debt instrument, unless the terms or condi-
scribed later). tions of the debt instrument are modified in a manner
that would constitute a deemed exchange under Reg-
Cash method debt instrument. This is any debt instru-
ulations section 1.1001-3.
ment given as payment for the sale or exchange of prop-
erty (other than new section 38 property) with a stated • A debt instrument issued in connection with a sale or
principal of $4,810,600 (adjusted annually for inflation un- exchange of property if either the debt instrument or
der section 1274A) or less if the following items apply. the property is publicly traded.
1. The lender (holder) doesn’t use an accrual method of • A sale or exchange of all substantial rights to a patent,
accounting and isn’t a dealer in the type of property or an undivided interest in property that includes part
sold or exchanged. or all substantial rights to a patent, if any amount is
contingent on the productivity, use, or disposition of
2. Both the borrower (issuer) and the lender jointly elect the property transferred. See chapter 2 of Pub. 544 for
to account for interest under the cash method of ac- more information.
counting.
• An annuity contract issued in connection with a sale or
exchange of property if the contract is described in

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section 1275(a)(1)(B) and Regulations section paid balance. The result is your basis in the installment
1.1275-1(j). obligation.

• A transfer of property subject to section 1041 (relating Example. Several years ago, you sold property on the
to transfers of property between spouses or incident to installment method. The buyer still owes you $10,000 of
divorce). the sale price. This is the unpaid balance on the buyer's
• A demand loan that is a below-market loan described installment obligation to you. Your gross profit percentage
in section 7872(c)(1) (for example, gift loans and cor- is 60%, so $6,000 (60% (0.60) × $10,000) is the profit
poration-shareholder loans). owed you on the obligation. The rest of the unpaid bal-
ance, $4,000, is your basis in the obligation.
• A below-market loan described in section 7872(c)(1)
issued in connection with the sale or exchange of per- Transfer between spouses or former spouses. No
sonal-use property. This rule applies only to the gain or loss is recognized on the transfer of an installment
holder. obligation between spouses or former spouses if the
transfer is incident to a divorce. A transfer is incident to a
More information. For information on figuring unstated
divorce if it occurs within 1 year after the date on which the
interest and OID and other special rules, see sections
marriage ends or is related to the end of the marriage. The
1274 and 483 and the related regulations. In the case of
same tax treatment of the transferred obligation applies to
an installment sale contract that provides for contingent
the transferee spouse or former spouse as would have ap-
payments, see Regulations sections 1.1275-4(c) and
plied to the transferor spouse or former spouse. The basis
1.483-4.
of the obligation to the transferee spouse (or former
spouse) is the adjusted basis of the transferor spouse.
Disposition of an The nonrecognition rule doesn’t apply if the spouse or
Installment Obligation former spouse receiving the obligation is a nonresident
alien.
A disposition generally includes a sale, exchange, cancel-
lation, bequest, distribution, or transmission of an install- Gift. A gift of an installment obligation is a disposition.
ment obligation. An installment obligation is the buyer's Your gain or loss is the difference between your basis in
note, deed of trust, or other evidence that the buyer will the obligation and its FMV at the time you make the gift.
make future payments to you.
For gifts between spouses or former spouses, see
If you’re using the installment method and you dispose Transfer between spouses or former spouses , earlier.
of the installment obligation, generally you’ll have a gain or
loss to report. It’s considered gain or loss on the sale of Cancellation. If an installment obligation is canceled or
the property for which you received the installment obliga- otherwise becomes unenforceable, it’s treated as a dispo-
tion. If the original installment sale produced ordinary in- sition other than a sale or exchange. Your gain or loss is
come, the disposition of the obligation will result in ordi- the difference between your basis in the obligation and its
nary income or loss. If the original sale resulted in a capital FMV at the time you cancel it. If the parties are related, the
gain, the disposition of the obligation will result in a capital FMV of the obligation is considered to be no less than its
gain or loss. If the original installment sale resulted in a full face value.
section 1231 capital gain (or loss), the disposition of the
obligation will result in either a long-term capital gain or an Forgiving part of the buyer's debt. If you accept part
ordinary loss. payment on the balance of the buyer's installment debt to
you and forgive the rest of the debt, you treat the settle-
Rules To Figure Gain or Loss ment as a disposition of the installment obligation. Your
gain or loss is the difference between your basis in the ob-
Use the following rules to figure your gain or loss from the ligation and the amount you realize on the settlement.
disposition of an installment obligation.
• If you sell or exchange the obligation, or you accept No Disposition
less than face value in satisfaction of the obligation,
your gain or loss is the difference between your basis The following transactions generally aren’t dispositions.

in the obligation and the amount you realize. Reduction of selling price. If you reduce the selling
• If you dispose of the obligation in any other way, your price but don’t cancel the rest of the buyer's debt to you, it
gain or loss is the difference between your basis in the isn’t considered a disposition of the installment obligation.
obligation and its FMV at the time of the disposition. You must refigure the gross profit percentage and apply it
This rule applies, for example, when you give the in- to payments you receive after the reduction. See Selling
stallment obligation to someone else or cancel the Price Reduced, earlier.
buyer's debt to you.
Assumption. If the buyer of your property sells it to
Basis. Figure your basis in an installment obligation by someone else and you agree to let the new buyer assume
multiplying the unpaid balance on the obligation by your the original buyer's installment obligation, you haven’t dis-
gross profit percentage. Subtract that amount from the un- posed of the installment obligation. It isn’t a disposition

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even if the new buyer pays you a higher rate of interest expenses you have from the FMV of the property. If you re-
than the original buyer. ceive anything from the buyer besides the repossessed
property, add its value to the property's FMV before mak-
Transfer due to death. The transfer of an installment ob- ing this calculation.
ligation (other than to a buyer) as a result of the death of
the seller isn’t a disposition. Any unreported gain from the How you figure your basis in the installment obligation
installment obligation isn’t treated as gross income to the depends on whether or not you reported the original sale
decedent. No income is reported on the decedent's return on the installment method. The method you used to report
due to the transfer. Whoever receives the installment obli- the original sale also affects the character of your gain or
gation as a result of the seller's death is taxed on the in- loss on the repossession.
stallment payments the same as the seller would have
been had the seller lived to receive the payments. Installment method not used to report original sale.
However, if an installment obligation is canceled, be- The following paragraphs explain how to figure your basis
comes unenforceable, or is transferred to the buyer be- in the installment obligation and the character of any gain
cause of the death of the holder of the obligation, it’s a dis- or loss if you didn’t use the installment method to report
position. The estate must figure its gain or loss on the the gain on the original sale.
disposition. If the holder and the buyer were related, the Basis in installment obligation. If the issue price of
FMV of the installment obligation is considered to be no the installment obligation is determined under section
less than its full face value. 1.1273-2 or section 1.1274-2, your basis will generally be
the issue price of the obligation increased by any OID in-
Repossession cluded in gross income and decreased by any payment
other than a payment of qualified stated interest. Other-
If you repossess your property after making an installment wise, your basis will be the amount realized attributable to
sale, you must figure the following amounts. the installment obligation increased by any unstated inter-
• Your gain (or loss) on the repossession. est recognized in income under section 483 and de-
creased by any payment other than a payment of stated
• Your basis in the repossessed property. interest. If only part of the obligation is discharged by the
repossession, figure your basis in only that part.
The rules for figuring these amounts depend on the
kind of property you repossess. The rules for reposses- Gain or loss. Add any repossession costs to your ba-
sions of personal property differ from those for real prop- sis in the obligation. If the FMV of the property you repos-
erty. Special rules may apply if you repossess property sess is more than this total, you have a gain. This is gain
that was your main home before the sale. See Regulations on the installment obligation, so it’s all ordinary income. If
section 1.1038-2 for further information. the FMV of the repossessed property is less than the total
of your basis plus repossession costs, you have a loss.
The repossession rules apply whether or not title to the
You included the full gain in income in the year of sale, so
property was ever transferred to the buyer. It doesn’t mat-
the loss is a bad debt. How you deduct the bad debt de-
ter how you repossess the property, whether you foreclose
pends on whether you sold business or nonbusiness
or the buyer voluntarily surrenders the property to you.
property in the original sale. See chapter 4 of Pub. 550 for
However, it isn’t a repossession if the buyer puts the prop-
information on nonbusiness bad debts and the instruc-
erty up for sale and you repurchase it.
tions for your income tax return for information on busi-
For the repossession rules to apply, the repossession ness bad debts.
must at least partially discharge (satisfy) the buyer's in-
stallment obligation to you. The discharged obligation Installment method used to report original sale. The
must be secured by the property you repossess. This re- following paragraphs explain how to figure your basis in
quirement is met if the property is auctioned off after you the installment obligation and the character of any gain or
foreclose and you apply the installment obligation to your loss if you used the installment method to report the gain
bid price at the auction. on the original sale.
Basis in installment obligation. Multiply the unpaid
Reporting the repossession. You report gain or loss balance of your installment obligation by your gross profit
from a repossession on the same form you used to report percentage. Subtract that amount from the unpaid bal-
the original sale. If you reported the sale on Form 4797, ance. The result is your basis in the installment obligation.
use it to report the gain or loss on the repossession.
Gain or loss. If the FMV of the repossessed property
Personal Property is more than the total of your basis in the obligation plus
any repossession costs, you have a gain. If the FMV is
If you repossess personal property, you may have a gain less, you have a loss. Your gain or loss on the reposses-
or a loss on the repossession. In some cases, you may sion is of the same character (capital or ordinary) as your
also have a bad debt. gain on the original sale.

To figure your gain or loss, subtract the total of your ba-
sis in the installment obligation and any repossession

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     Use Worksheet C to determine the taxable gain or                             FMV  of  repossessed  property.                               The  FMV  of  repos-
     loss  on  a  repossession  of  personal  property  re-                       sessed property is a question of fact to be established in 
     ported on the installment method.                                            each  case.  If  you  bid  for  the  property  at  a  lawful  public 
                                                                                  auction  or  judicial  sale,  its  FMV  is  presumed  to  be  the 
Example.      You sold your piano for $1,500 in December                          price it sells for, unless there’s clear and convincing evi-
2022 for $300 down and $100 a month (plus interest). The                          dence to the contrary.
payments  began  in  January  2023.  Your  gross  profit  per-
centage is 40%. You reported the sale on the installment                          Real Property
method on your 2022 income tax return. After the fourth 
monthly  payment,  the  buyer  defaulted  on  the  contract                       The rules for the repossession of real property allow you 
(which has an unpaid balance of $800) and you’re forced                           to keep essentially the same adjusted basis in the repos-
to repossess the piano. The FMV of the piano on the date                          sessed property you had before the original sale. You can 
of repossession is $1,400. The legal costs of foreclosure                         recover  this  entire  adjusted  basis  when  you  resell  the 
and the expense of moving the piano back to your home                             property. This, in effect, cancels out the tax treatment that 
total $75. You figure your gain on the repossession as il-                        applied  to  you  on  the  original  sale  and  puts  you  in  the 
lustrated in Example—Worksheet C.                                                 same tax position you were in before that sale.

                                                                                  As a result, the total payments you’ve received from the 
Example—      Figuring Gain or Loss on                                            buyer on the original sale must be considered income to 
Worksheet C. Repossession of Personal                                             you. You report, as gain on the repossession, any part of 
              Property                                                            the payments you haven’t yet included in income. These 
Note. Use this worksheet only if you used the installment                         payments are amounts you previously treated as a return 
                                                                                  of  your  adjusted  basis  and  excluded  from  income.  How-
method to report the gain on the original sale.
                                                                                  ever, the total gain you report is limited. See Limit on taxa-
1. Enter the FMV of the repossessed property . . . . . .                    1,400 ble gain, later.

2. Enter the unpaid balance of the                                                Mandatory  rules.               The  rules  concerning  basis  and  gain 
   installment obligation . . . . . . . . . . . .    800
                                                                                  on  repossessed  real  property  are  mandatory.  You  must 
3. Enter your gross profit percentage for 
   the installment sale . . . . . . . . . . . . .    40% (0.40)                   use  them  to  figure  your  basis  in  the  repossessed  real 
4. Multiply line 2 by line 3. This is your                                        property and your gain on the repossession. They apply 
   unrealized profit . . . . . . . . . . . . . . . . 320                          whether  or  not  you  reported  the  sale  on  the  installment 
5. Subtract line 4 from line 2. This is the basis of the                          method.  However,  they  apply  only  if  all  of  the  following 
   obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   480   conditions are met.
6. Enter your costs of repossessing the 
   property   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75    1. The repossession must be to protect your security 
7. Add lines 5 and 6 . . . . . . . . . . . . . . . . . . . . . . . . .      555   rights in the property.
8. Subtract line 7 from line 1. This is your gain or loss                         2. The installment obligation satisfied by the reposses-
   on the repossession . . . . . . . . . . . . . . . . . . . . . . .        845
                                                                                  sion must have been received in the original sale.
Basis  in  repossessed  property.                    Your  basis  in  repos-      3. You can’t pay any additional consideration to the 
sessed personal property is its FMV at the time of the re-                        buyer to get your property back unless either of the 
possession.                                                                       situations listed below applies.

Worksheet C. Figuring Gain or Loss on Repossession of 
              Personal Property                                                                                   Keep for Your Records

              Note. Use this worksheet only if you used the installment method to report the gain on the original 
              sale.

1.   Enter the FMV of the repossessed property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                           
2.   Enter the unpaid balance of the installment obligation . . . . . .                                                                         
3.   Enter your gross profit percentage for the installment 
     sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               
4.   Multiply line 2 by line 3. This is your unrealized profit . . . . . . .                                                                    
5.   Subtract line 4 from line 2. This is the basis of the obligation . . . . . . . . . . . . . . . . . . . . . .                                
6.   Enter your costs of repossessing the property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                           
7.   Add lines 5 and 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   
8.   Subtract line 7 from line 1. This is your gain or loss on the repossession . . . . . . . . . . .                                            

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   a. The requisition and payment of the additional con-            Character of gain.              The taxable gain on repossession 
   sideration were provided for in the original contract           is ordinary income or capital gain, the same as the gain on 
   of sale.                                                        the original sale. However, if you didn’t report the sale on 
                                                                   the installment method, the gain is ordinary income.
   b. The buyer has defaulted, or default is imminent.
                                                                    Repossession  costs.                  Your  repossession  costs  in-
Additional consideration includes money and other prop-
                                                                   clude  money  or  property  you  pay  to  reacquire  the  real 
erty you pay or transfer to the buyer. For example, addi-
                                                                   property. This includes amounts paid to the buyer of the 
tional  consideration  is  paid  if  you  reacquire  the  property 
                                                                   property, as well as amounts paid to others for such items 
subject to a debt that arose after the original sale.
                                                                   as those listed below.
Conditions not met.       If any one of these three condi-           Court costs and legal fees.
                                                                   •
tions  isn’t  met,  use  the  rules  discussed  under Personal 
Property,  earlier,  as  if  the  property  you  repossess  were   • Publishing, acquiring, filing, or recording of title.
personal rather than real property. Don’t use the rules for        • Lien clearance.
real property.
                                                                    Repossession costs don’t include the FMV of the buy-
Figuring gain on repossession.    Your gain on reposses-           er's obligations to you that are secured by the real prop-
sion is the difference between the following amounts.              erty or the costs of reacquiring those obligations.
•  The total payments received, or considered received,                  Use       Worksheet  D  to  determine  the  taxable  gain 
   on the sale.                                                          on a repossession of real property reported on the 
                                                                         installment method.
•  The total gain already reported as income.
See the earlier discussions under Payments Received or              Example.        You sold a tract of land in January 2021 for 
Considered  Received  for  items  considered  payment  on          $25,000.  You  accepted  a  $5,000  down  payment,  plus  a 
the sale.                                                          $20,000 mortgage secured by the property and payable at 
                                                                   the rate of $4,000 annually plus interest (9.5%). The pay-
Limit on taxable gain.    Taxable gain is limited to your 
                                                                   ments began on January 1, 2022. Your adjusted basis in 
gross profit on the original sale minus the sum of the fol-
                                                                   the property was $19,000 and you reported the transac-
lowing amounts.
                                                                   tion  as  an  installment  sale.  Your  selling  expenses  were 
•  The gain on the sale you reported as income before              $1,000. You figured your gross profit as follows.
   the repossession.
•  Your repossession costs.                                        Selling price. . . . . . . . . . . . . . . . . . . . . . . . . . .                             $25,000
                                                                   Minus:
This method of figuring taxable gain, in essence, treats all         Adjusted basis   . . . . . . . . . . . . . .                                          $19,000
payments received on the sale as income but limits your              Selling expenses    . . . . . . . . . . . . .                                         1,000  20,000
total taxable gain to the gross profit you originally expec-       Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . .                              $5,000
ted on the sale.
Indefinite  selling  price. The  limit  on  taxable  gain           For this sale, the contract price equals the selling price. 
doesn’t apply if the selling price is indefinite and can’t be      The gross profit percentage is 20% ($5,000 gross profit ÷ 
determined  at  the  time  of  repossession.  For  example,  a     $25,000 contract price).
selling price stated as a percentage of the profits to be re-       In 2021, you included $1,000 in income (20% (0.20) × 
alized from the buyer's development of the property is an          $5,000 down payment). In 2022, you reported a profit of 
indefinite selling price.                                          $800 (20% (0.20) × $4,000 annual installment). In 2023, 

Worksheet D. Taxable Gain on Repossession of Real 
                Property                                                                           Keep for Your Records

                Note. Use this worksheet to determine taxable gain on the repossession of real property if you used 
                the installment method to report the gain on the original sale.

1. Enter the total of all payments received or treated as received before repossession . . . . . . .                                                               
2. Enter the total gain already reported as income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                 
3. Subtract line 2 from line 1. This is your gain on the repossession . . . . . . . . . . . . . . . . . . . . . . . .                                              
4. Enter your gross profit on the original sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                          
5. Enter your costs of repossessing the property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                 
6. Add line 2 and line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         
7. Subtract line 6 from line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             
8. Enter the lesser of line 3 or 
   line 7. This is your taxable gain on the repossession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                   

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the  buyer  defaulted  and  you  repossessed  the  property.                      because  the  buyer  made  a  $4,000  payment.  The  gross 
You paid $500 in legal fees to get the property back. Your                        profit percentage on the original sale was 20%. Therefore, 
taxable gain on the repossession is figured as illustrated in                     $3,200 (20% (0.20) × $16,000 still due on the note) is un-
Example—Worksheet D.                                                              realized  profit.  You  figure  your  basis  in  the  repossessed 
                                                                                  property as illustrated in Example—Worksheet E.
Example—     Taxable Gain on Repossession 
Worksheet D. of Real Property                                                     Example—     Basis of Repossessed Real 
                                                                                  Worksheet E. Property
Note. Use this worksheet to determine taxable gain on the 
repossession of real property if you used the installment                                      Note. Use this worksheet to determine 
method to report the gain on the original sale.                                                your basis in the repossessed real 
                                                                                               property.
1. Enter the total of all payments received or treated as 
   received before repossession . . . . . . . . . . . . . . . . .           9,000 1. Enter the unpaid balance on the installment 
2. Enter the total gain already reported as                                       obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     16,000
   income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800 2. Enter your gross profit percentage for the installment 
3. Subtract line 2 from line 1. This is your gain on the                          sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20% (0.20)
   repossession . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7,200 3. Multiply line 1 by line 2. This is your unrealized 
4. Enter your gross profit on the original sale . . . . . . . .             5,000 profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,200
5. Enter your costs of repossessing the                                           4. Subtract line 3 from line 1. This is your adjusted basis 
   property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500   in the installment obligation on the date of the 
6. Add line 2 and line 5 . . . . . . . . . . . . . . . . . . . . . . . .    2,300 repossession . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       12,800
                                                                                  5. Enter your taxable gain on the repossession . . . . . .                   2,700
7. Subtract line 6 from line 4 . . . . . . . . . . . . . . . . . . . .      2,700
                                                                                  6. Enter your costs of repossessing the 
8. Enter the lesser of line 3 or                                                  property   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   500
   line 7. This is your taxable gain on the                                       7. Add lines 4, 5, and 6. This is your basis in the 
   repossession . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2,700                                                                              16,000
                                                                                  repossessed real property . . . . . . . . . . . . . . . . . . .

Basis. Your  basis  in  the  repossessed  property  is  deter-                    Holding  period  for  resales. If  you  resell  the  repos-
mined as of the date of repossession. It’s the sum of the                         sessed property, the resale may result in a capital gain or 
following amounts.                                                                loss.  To  figure  whether  the  gain  or  loss  is  long  term  or 
•  Your adjusted basis in the installment obligation.                             short  term,  your  holding  period  includes  the  period  you 
                                                                                  owned the property before the original sale plus the period 
•  Your repossession costs.
                                                                                  after  the  repossession.  It  doesn’t  include  the  period  the 
•  Your taxable gain on the repossession.                                         buyer owned the property.
To figure your adjusted basis in the installment obligation                       If  the  buyer  made  improvements  to  the  reacquired 
at  the  time  of  repossession,  multiply  the  unpaid  balance                  property,  the  holding  period  for  these  improvements  be-
by the gross profit percentage. Subtract that amount from                         gins on the day after the date of repossession.
the unpaid balance.
                                                                                  Bad  debt. If  you  repossess  real  property  under  these 
       Use  Worksheet  E  to  determine  the  basis  of  real                     rules, you can’t take a bad debt deduction for any part of 
       property repossessed.                                                      the buyer's installment obligation. This is true even if the 
                                                                                  obligation isn’t fully satisfied by the repossession.
                                                                                  If you took a bad debt deduction before the tax year of 
Example.    Assume  the  same  facts  as  in  the  previous 
                                                                                  repossession,  you’re  considered  to  have  recovered  the 
example. The unpaid balance of the installment obligation 
                                                                                  bad  debt  when  you  repossess  the  property.  You  must 
(the $20,000 note) is $16,000 at the time of repossession 

Worksheet E. Basis of Repossessed Real Property
                                                                                                    Keep for Your Records

             Note. Use this worksheet to determine your basis in the repossessed real property.

1.   Enter the unpaid balance on the installment obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                 
2.   Enter your gross profit percentage for the installment sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                  
3.   Multiply line 1 by line 2. This is your unrealized profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                            
4.   Subtract line 3 from line 1. This is your adjusted basis in the installment obligation on the 
     date of the repossession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         
5.   Enter your taxable gain on the repossession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                          
6.   Enter your costs of repossessing the property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                            
7.   Add lines 4, 5, and 6. This is your basis in the repossessed real property . . . . . . . . . . . . . . . . .                                               

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report the bad debt deduction taken in the earlier year as            How to figure interest on deferred tax. First, find the 
income in the year of repossession. However, if any part of           underpayment  rate  in  effect  for  the  month  with  or  within 
the  earlier  deduction  didn’t  reduce  your  tax,  you  don’t       which your tax year ends. The underpayment rate is pub-
have to report that part as income. Your adjusted basis in            lished quarterly in the Internal Revenue Bulletin, available 
the installment obligation is increased by the amount you             at IRS.gov/irb. Then compute the deferred tax liability. The 
report as income from recovering the bad debt.                        deferred tax liability is equal to the balance of the unrecog-
                                                                      nized  gain  at  the  end  of  the  tax  year  multiplied  by  your 
Interest on Deferred Tax                                              maximum  tax  rate  (ordinary  or  capital  gain,  as  appropri-
                                                                      ate) in effect for the tax year. Note, you will need to deter-
Generally, you must pay interest on the deferred tax rela-            mine the gross profit percentage of the installment sale to 
ted to any obligation that arises during a tax year from the          calculate the amount of the gain that has not been recog-
disposition  of  property  under  the  installment  method  if        nized. Next you will need to compute the applicable per-
both of the following apply.                                          centage. The applicable percentage is the aggregate face 
                                                                      amount  of  obligations  outstanding  as  of  the  close  of  the 
• The property had a sales price over $150,000. In de-
                                                                      tax year in excess of $5 million divided by the aggregate 
  termining the sales price, treat all sales that are part of 
                                                                      face amount of obligations outstanding as of the close of 
  the same transaction as a single sale.
                                                                      the tax year. To determine the interest on the deferred tax 
• The total balance of all nondealer installment obliga-              you owe, multiply your deferred tax liability by the applica-
  tions arising during, and outstanding at the close of,              ble percentage by the underpayment rate.
  the tax year is more than $5 million.
                                                                         Section  453A  Example.  Below  is  an  example  of  the 
Subsequent years.   You must pay interest in subsequent               computation. ABC, Inc., a calendar year taxpayer, sold in-
years if installment obligations that originally required in-         tellectual property with a $0 basis to an unrelated party on 
terest to be paid are still outstanding at the close of a tax         November  15,  2020,  for  $15  million  on  the  installment 
year.                                                                 method  (a  payment  is  due  after  the  year  of  sale).  ABC, 
                                                                      Inc.,  incurred  $500,000  of  expenses  related  to  the  sale. 
Exceptions.  This interest rule doesn’t apply to disposi-             The  installment  sale  contract  requires  the  following 
tions of:                                                             payments.
• Farm property,                                                      •  2020: $1 million.
• Personal-use property by an individual,                             •  2021: $5 million.
• Personal property before 1989, or                                   •  2022: $9 million—Note is paid off.
• Real property before 1988.

Computation Under Section 453A

  Section 453A(c)(2)         Section 453A(c)(3)                       Section 453A(c)(4)             Section 453A(c)(2)(B)
Interest on Deferred Tax =   Deferred Tax Liability (See Step 1 x    Applicable Percentage (See x    Underpayment Rate (Step 3)
          Liability                 below)                               Step 2 below)

Step 1: 2020 Compute the Deferred Tax Liability
                         = The amount of gain with respect to an obligation which has not been    The maximum rate of tax for ordinary 
                         recognized as of the close of such tax year                            x income or long-term capital gain, as 
                                                                                                     applicable for such tax year

                         Form 6252, line 7, Selling price minus liabilities assumed               15,000,000
                         – Form 6252, line 21, Payments received in current year                  (1,000,000)
                         2020 Deferred Obligation                                                 14,000,000

                         x Form 6252, line 19, Gross profit percentage
                             (($15,000,000 – $500,000)/$15,000,000)                               96.6670%
                         The amount of gain that has not been recognized                          13,533,380
                         x Maximum capital gains tax rate                                         21%

                         Deferred Tax Liability                                                   2,842,010

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Step 2: Compute the Applicable Percentage
The applicable percentage is computed in the year of sale and is used for all subsequent years.

                       Aggregate face amount of obligations arising in a tax year and outstanding   $5,000,000 Excluded obligation limit 
                       as of the close of such tax year from dispositions with sales price >      – per section 453A(b)(2)(B) & section 
              = $150,000                                                                                       453A(c)(4)(A)

                       Aggregate face amount of obligations arising in a tax year and outstanding as of the close of such tax year from 
                       dispositions with sales price > $150,000

                       Form 6252, line 7, Selling price minus liabilities assumed                   15,000,000
                       – Form 6252, line 21, Payments received in current year                      (1,000,000)
                       2020 Deferred Obligation                                                     14,000,000

                       (14,000,000 – 5,000,000)                                                   = 64.2857%
                         14,000,000

Step 3: Determine the Underpayment Rate
The underpayment rate as of December 31, 2020, was 3%. The underpayment rate under section 453A(c)(2)(B) is the underpayment rate 
determined under section 6621(a)(2).

Step 4: Compute the Interest Due (Additional Tax) on the Deferred Tax Liability

                       =            Deferred Tax Liability x     Applicable Percentage            x           Underpayment Rate

                         Deferred Tax Liability                2,842,010
                         x Applicable Percentage               64.2857%
                         x Underpayment Rate                   3.00%
                         2020 453A additional tax              $54,810.18

                         2021 Deferred Tax Liability calculation:
                         2020 Deferred Obligation                                                   14,000,000
                         – 2021 Payment received                                                    (5,000,000)
                         2021 Deferred Obligation                                                   9,000,000
                         x Gross Profit Percentage                                                  96.6670%
                         The amount of gain that has not been recognized                            8,700,030
                         x Maximum capital gains tax rate                                           21%
                         2021 Deferred Tax Liability                                                1,827,006

                         2021 Section 453A Calculation:
                         Deferred Tax Liability                                                                1,827,006
                         x Applicable Percentage                                                               64.2857%
                         x Underpayment Rate                                                                   3.00%
                         2021 Section 453A additional tax                                                      $35,235

                         2022 Section 453A Calculation: Note is paid off in full, so no deferred tax liability
                         Deferred Tax Liability                                                                0
                         x Applicable Percentage                                                               64.2857%
                         x Underpayment Rate                                                                   N/A
                         2022 Section 453A additional tax                                                      $0

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Computation Under Section 453A

Section 453A(c)(2) Section 453A(c)(3) Section 453A(c)(4) Section 453A(c)(2)(B)
Interest on Deferred Tax = Deferred Tax Liability (Step 1 x Applicable Percentage (Step 2 x Underpayment Rate (Step 3)
Liability below) below)

Step 1: Compute the Deferred Tax Liability

Section 453A(c)(3)(A) Section 453A(c)(3)(8)
The amount of gain with respect The maximum rate of tax for
= to an obligation which has not x ordinary income or long-term
been recognized as of the close capital gain, as applicable for
of such tax year such tax year

Step 2: Compute the Applicable Percentage

Aggregate face amount of obligations arising in a tax year and
outstanding as of the close of such tax year from dispositions with – 5,000,000
= sales price > $150,000
Aggregate face amount of obligations arising in a tax year and outstanding as of the close of such tax year from
dispositions with sales price > $150,000
Note. The Applicable Percentage is computed in the initial year the installment sale arises. It does not change as payments are made in subsequent years.

Step 3: Determine the Underpayment Rate

Step 4: Compute the Interest Due (Additional Tax) on the Deferred Tax Liability
= Deferred Tax Liability x Applicable Percentage x Underpayment Rate
For information on interest on dealer sales of time-
shares and residential lots under the installment method,
see section 453(l). Reporting an Installment Sale

How to report the interest. Enter the interest as addi- Form 6252. Use Form 6252 to report a sale of property
tional tax on your tax return. Individuals report the amount on the installment method. The form is used to report the
on Schedule 2 (Form 1040), line 15. sale in the year it takes place and to report payments re-
U.S. corporations report the interest on Form 1120, ceived in later years. Also, if you sold property to a related
Schedule J, line 9f. person, you may have to file the form each year until the
Foreign corporations using Form 1120-F include the in- installment debt is paid off, whether or not you receive a
terest on the other taxes line (Form 1120-F, Schedule J, payment in that year.
line 8f).
Corporations can deduct the interest in the year it’s Which parts to complete. Complete lines 1 through 4,
paid or accrued. For individuals and other taxpayers, this Part I, and Part II for each year of the installment agree-
interest isn’t deductible. Follow the instructions for your tax ment. Also, complete Part III if you sold property to a rela-
return. ted party.
For all years. Complete Part I, lines 1 through 4, and
Special Rules for Capital Gains Part II. If you sold property to a related party during the
year, also complete Part III. Complete Form 6252 for each
Invested in QOF
year of the installment agreement, including the year of fi-
If you have a capital gain, you can invest that gain into a nal payment, even if a payment wasn’t received during the
QOF and elect to defer part or all of the gain that is other- year.
wise includible in income. The gain is deferred until you After 1986, the installment method isn’t available for the
sell or exchange the investment in the QOF or December sale of marketable securities.
31, 2026, whichever is earlier. You may also be able to If you sold property other than a marketable security to
permanently exclude the gain from the sale or exchange a related party after May 14, 1980, complete Form 6252
of any investment in a QOF if the investment is held for at for the year of the sale and for the 2 years after the year of
least 10 years. For information about what types of gains sale, even if you didn’t receive a payment in those years.
entitle you to elect these special rules, see the Instructions Complete lines 1 through 4. Complete Part II for each of
for Schedule D for your tax return. Report the eligible gain the 2 years after the year of sale in which you receive a
on the form and in the manner otherwise instructed. See payment. Complete Part III for each of the 2 years after the
the Instructions for Form 8949 on how to report your elec- year of the sale unless you received the final payment dur-
tion to defer eligible gains invested in a QOF. ing the year.
If the related person to whom you sold your property
disposes of it, you may have to immediately report the rest
of your gain in Part III. See Sale and Later Disposition,
earlier, for more information.

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Several assets. If you sell two or more assets in one an installment sale, any gain you exclude isn’t included in
installment sale, you may have to separately report the gross profit when figuring your gross profit percentage.
sale of each asset. The same is true if you sell all the as-
Seller-financed mortgage. If you finance the sale of
sets of your business in one installment sale. See Single
your home to an individual, both you and the buyer may
Sale of Several Assets and Sale of a Business, earlier.
have to follow special reporting procedures.
If you have only a few sales to separately report, use a
When you report interest income received from a buyer
separate Form 6252 for each one. However, if you have to
who uses the property as a personal residence, enter the
separately report the sale of multiple assets that you sold
buyer's name, address, and social security number (SSN)
together, prepare only one Form 6252 and attach a sched-
on line 1 of Schedule B (Form 1040). See the Instructions
ule with all the required information for each asset. Com-
for Schedule B (Form 1040).
plete Form 6252 by following the steps listed below.
When deducting the mortgage interest, the buyer must
1. Answer the questions at the top of the form. enter your name, address, and SSN on line 8b of Sched-
ule A (Form 1040).
2. In the year of sale, don’t complete Part I. Instead,
If either person fails to include the other person's SSN,
write “See attached schedule” in the margin.
a penalty will be assessed.
3. For Part II, enter the total for all the assets on lines 24,
25, and 26.
4. For Part III, answer all the questions that apply. If none How To Get Tax Help
of the exceptions under question 29 apply, enter the
totals on lines 35, 36, and 37 for the disposed assets. If you have questions about a tax issue; need help prepar-
ing your tax return; or want to download free publications,
Special situations. If you’re reporting payments from forms, or instructions, go to IRS.gov to find resources that
an installment sale as income in respect of a decedent or can help you right away.
as a beneficiary of a trust, including a partial interest in
such a sale, you may not be able to provide all the infor- Preparing and filing your tax return. After receiving all
mation asked for on Form 6252. To the extent possible, your wage and earnings statements (Forms W-2, W-2G,
follow the instructions given above and provide as many 1099-R, 1099-MISC, 1099-NEC, etc.); unemployment
details as possible in a statement attached to Form 6252. compensation statements (by mail or in a digital format) or
For more information on how to complete Form 6252, other government payment statements (Form 1099-G);
see the form instructions. and interest, dividend, and retirement statements from
banks and investment firms (Forms 1099), you have sev-
Other forms. The gain from Form 6252 is entered on eral options to choose from to prepare and file your tax re-
Schedule D (Form 1040), Form 4797, or both. turn. You can prepare the tax return yourself, see if you
Schedule D (Form 1040). Enter the gain figured on qualify for free tax preparation, or hire a tax professional to
Form 6252 (line 26) for personal-use property (capital as- prepare your return.
sets) on Schedule D (Form 1040) as a short-term gain
Free options for tax preparation. Your options for pre-
(line 4) or long-term gain (line 11). If your gain from the in-
paring and filing your return online or in your local com-
stallment sale qualifies for long-term capital gain treatment
munity, if you qualify, include the following.
in the year of sale, it will continue to qualify in later tax
years. Your gain is long term if you owned the property for • Free File. This program lets you prepare and file your
more than 1 year when you sold it. federal individual income tax return for free using soft-
Although the references in this publication are to the ware or Free File Fillable Forms. However, state tax
Schedule D (Form 1040), the rules discussed also apply preparation may not be available through Free File. Go
to Schedule D (Form 1041), Schedule D (Form 1065), to IRS.gov/FreeFile to see if you qualify for free online
Schedule D (Form 1120), and Schedule D (Form 1120-S). federal tax preparation, e-filing, and direct deposit or
payment options.
Form 4797. An installment sale of property used in
your business or that earns rent or royalty income may re- • VITA. The Volunteer Income Tax Assistance (VITA)
sult in a capital gain, an ordinary gain, or both. All or part program offers free tax help to people with
of any gain from the disposition of the property may be or- low-to-moderate incomes, persons with disabilities,
dinary gain from depreciation recapture. For trade or busi- and limited-English-speaking taxpayers who need
ness property held for more than 1 year, enter the amount help preparing their own tax returns. Go to IRS.gov/
from line 26 of Form 6252 on Form 4797, line 4. If the VITA, download the free IRS2Go app, or call
property was held 1 year or less or you have an ordinary 800-906-9887 for information on free tax return prepa-
gain from the sale of a noncapital asset (even if the hold- ration.
ing period is more than 1 year), enter this amount on Form • TCE. The Tax Counseling for the Elderly (TCE) pro-
4797, line 10, and write “From Form 6252.” gram offers free tax help for all taxpayers, particularly
those who are 60 years of age and older. TCE volun-
Sale of your home. If you sell your home, you may be
teers specialize in answering questions about pen-
able to exclude all or part of the gain on the sale. See Pub.
sions and retirement-related issues unique to seniors.
523 for information about excluding the gain. If the sale is

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Go to IRS.gov/TCE or download the free IRS2Go app • Required to include their preparer tax identification
for information on free tax return preparation. number (PTIN).
• MilTax. Members of the U.S. Armed Forces and quali- Although the tax preparer always signs the return,
fied veterans may use MilTax, a free tax service of- ! you're ultimately responsible for providing all the
fered by the Department of Defense through Military CAUTION information required for the preparer to accurately
OneSource. For more information, go to prepare your return and for the accuracy of every item re-
MilitaryOneSource MilitaryOneSource.mil/MilTax ( ). ported on the return. Anyone paid to prepare tax returns
Also, the IRS offers Free Fillable Forms, which can for others should have a thorough understanding of tax
be completed online and then e-filed regardless of in- matters. For more information on how to choose a tax pre-
come. parer, go to Tips for Choosing a Tax Preparer on IRS.gov.

Using online tools to help prepare your return. Go to
Employers can register to use Business Services On-
IRS.gov/Tools for the following.
line. The Social Security Administration (SSA) offers on-
• The Earned Income Tax Credit Assistant IRS.gov/ ( line service at SSA.gov/employer for fast, free, and secure
EITCAssistant) determines if you’re eligible for the W-2 filing options to CPAs, accountants, enrolled agents,
earned income credit (EIC). and individuals who process Form W-2, Wage and Tax
Statement, and Form W-2c, Corrected Wage and Tax
• The Online EIN Application IRS.gov/EIN ( ) helps you
Statement.
get an employer identification number (EIN) at no
cost. IRS social media. Go to IRS.gov/SocialMedia to see the
• The Tax Withholding Estimator IRS.gov/W4App ( ) various social media tools the IRS uses to share the latest
makes it easier for you to estimate the federal income information on tax changes, scam alerts, initiatives, prod-
tax you want your employer to withhold from your pay- ucts, and services. At the IRS, privacy and security are our
check. This is tax withholding. See how your withhold- highest priority. We use these tools to share public infor-
ing affects your refund, take-home pay, or tax due. mation with you. Don’t post your social security number
(SSN) or other confidential information on social media
• The First-Time Homebuyer Credit Account Look-up
sites. Always protect your identity when using any social
(IRS.gov/HomeBuyer) tool provides information on
networking site.
your repayments and account balance.
The following IRS YouTube channels provide short, in-
• The Sales Tax Deduction Calculator IRS.gov/ ( formative videos on various tax-related topics in English,
SalesTax) figures the amount you can claim if you Spanish, and ASL.
itemize deductions on Schedule A (Form 1040).
• Youtube.com/irsvideos.
Getting answers to your tax questions. On
• Youtube.com/irsvideosmultilingua.
IRS.gov, you can get up-to-date information on
current events and changes in tax law. • Youtube.com/irsvideosASL.

• IRS.gov/Help: A variety of tools to help you get an- Watching IRS videos. The IRS Video portal
swers to some of the most common tax questions. (IRSVideos.gov) contains video and audio presentations
• IRS.gov/ITA: The Interactive Tax Assistant, a tool that for individuals, small businesses, and tax professionals.
will ask you questions and, based on your input, pro-
vide answers on a number of tax topics. Online tax information in other languages. You can
find information on IRS.gov/MyLanguage if English isn’t
• IRS.gov/Forms: Find forms, instructions, and publica- your native language.
tions. You will find details on the most recent tax
changes and interactive links to help you find answers Free Over-the-Phone Interpreter (OPI) Service. The
to your questions. IRS is committed to serving taxpayers with limited-English
proficiency (LEP) by offering OPI services. The OPI Serv-
• You may also be able to access tax information in your
ice is a federally funded program and is available at Tax-
e-filing software.
payer Assistance Centers (TACs), most IRS offices, and
every VITA/TCE tax return site. The OPI Service is acces-
Need someone to prepare your tax return? There are sible in more than 350 languages.
various types of tax return preparers, including enrolled
agents, certified public accountants (CPAs), accountants, Accessibility Helpline available for taxpayers with
and many others who don’t have professional credentials. disabilities. Taxpayers who need information about ac-
If you choose to have someone prepare your tax return, cessibility services can call 833-690-0598. The Accessi-
choose that preparer wisely. A paid tax preparer is: bility Helpline can answer questions related to current and
future accessibility products and services available in al-
• Primarily responsible for the overall substantive accu- ternative media formats (for example, braille, large print,
racy of your return, audio, etc.). The Accessibility Helpline does not have ac-
• Required to sign the return, and cess to your IRS account. For help with tax law, refunds, or
account-related issues, go to IRS.gov/LetUsHelp.

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Note. Form 9000, Alternative Media Preference, or which securely and electronically transfers your refund di-
Form 9000(SP) allows you to elect to receive certain types rectly into your financial account. Direct deposit also
of written correspondence in the following formats. avoids the possibility that your check could be lost, stolen,
• Standard Print. or returned undeliverable to the IRS. Eight in 10 taxpayers
use direct deposit to receive their refunds. If you don’t
• Large Print. have a bank account, go to IRS.gov/DirectDeposit for
• Braille. more information on where to find a bank or credit union
that can open an account online.
• Audio (MP3).
• Plain Text File (TXT). Reporting and resolving your tax-related identity
theft issues.
• Braille Ready File (BRF).
• Tax-related identity theft happens when someone
Disasters. Go to IRS.gov/DisasterRelief to review the steals your personal information to commit tax fraud.
available disaster tax relief. Your taxes can be affected if your SSN is used to file a
fraudulent return or to claim a refund or credit.
Getting tax forms and publications. Go to IRS.gov/
Forms to view, download, or print all of the forms, instruc- • The IRS doesn’t initiate contact with taxpayers by
tions, and publications you may need. Or, you can go to email, text messages (including shortened links), tele-
IRS.gov/OrderForms to place an order. phone calls, or social media channels to request or
verify personal or financial information. This includes
Getting tax publications and instructions in eBook requests for personal identification numbers (PINs),
format. Download and view most tax publications and in- passwords, or similar information for credit cards,
structions (including the Instructions for Form 1040) on banks, or other financial accounts.
mobile devices as eBooks at IRS.gov/eBooks. Go to IRS.gov/IdentityTheft, the IRS Identity Theft
•
IRS eBooks have been tested using Apple's iBooks for Central webpage, for information on identity theft and
iPad. Our eBooks haven’t been tested on other dedicated data security protection for taxpayers, tax professio-
eBook readers, and eBook functionality may not operate nals, and businesses. If your SSN has been lost or
as intended. stolen or you suspect you’re a victim of tax-related
Access your online account (individual taxpayers identity theft, you can learn what steps you should
only). Go to IRS.gov/Account to securely access infor- take.
mation about your federal tax account. • Get an Identity Protection PIN (IP PIN). IP PINs are
• View the amount you owe and a breakdown by tax six-digit numbers assigned to taxpayers to help pre-
year. vent the misuse of their SSNs on fraudulent federal in-
come tax returns. When you have an IP PIN, it pre-
• See payment plan details or apply for a new payment vents someone else from filing a tax return with your
plan. SSN. To learn more, go to IRS.gov/IPPIN.
• Make a payment or view 5 years of payment history
and any pending or scheduled payments. Ways to check on the status of your refund.
• Access your tax records, including key data from your • Go to IRS.gov/Refunds.
most recent tax return, and transcripts. • Download the official IRS2Go app to your mobile de-
• View digital copies of select notices from the IRS. vice to check your refund status.
• Approve or reject authorization requests from tax pro- • Call the automated refund hotline at 800-829-1954.
fessionals. The IRS can’t issue refunds before mid-February
• View your address on file or manage your communica- ! for returns that claimed the EIC or the additional
tion preferences. CAUTION child tax credit (ACTC). This applies to the entire
refund, not just the portion associated with these credits.
Get a transcript of your return. With an online account,
you can access a variety of information to help you during Making a tax payment. Payments of U.S. tax must be
the filing season. You can get a transcript, review your remitted to the IRS in U.S. dollars. Digital assets are not
most recently filed tax return, and get your adjusted gross accepted. Go to IRS.gov/Payments for information on how
income. Create or access your online account at IRS.gov/ to make a payment using any of the following options.
Account.
• IRS Direct Pay: Pay your individual tax bill or estimated
Tax Pro Account. This tool lets your tax professional tax payment directly from your checking or savings ac-
submit an authorization request to access your individual count at no cost to you.
taxpayer IRS online account. For more information, go to • Debit Card, Credit Card, or Digital Wallet: Choose an
IRS.gov/TaxProAccount. approved payment processor to pay online or by
phone.
Using direct deposit. The safest and easiest way to re-
ceive a tax refund is to e-file and choose direct deposit,

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• Electronic Funds Withdrawal: Schedule a payment taxpayers is part of a multi-year timeline that began pro-
when filing your federal taxes using tax return prepara- viding translations in 2023. You will continue to receive
tion software or through a tax professional. communications, including notices and letters, in English
until they are translated to your preferred language.
• Electronic Federal Tax Payment System: Best option
for businesses. Enrollment is required. Contacting your local TAC. Keep in mind, many ques-
• Check or Money Order: Mail your payment to the ad- tions can be answered on IRS.gov without visiting a TAC.
dress listed on the notice or instructions. Go to IRS.gov/LetUsHelp for the topics people ask about
most. If you still need help, TACs provide tax help when a
• Cash: You may be able to pay your taxes with cash at
tax issue can’t be handled online or by phone. All TACs
a participating retail store.
now provide service by appointment, so you’ll know in ad-
• Same-Day Wire: You may be able to do same-day vance that you can get the service you need without long
wire from your financial institution. Contact your finan- wait times. Before you visit, go to IRS.gov/TACLocator to
cial institution for availability, cost, and time frames. find the nearest TAC and to check hours, available serv-
ices, and appointment options. Or, on the IRS2Go app,
Note. The IRS uses the latest encryption technology to under the Stay Connected tab, choose the Contact Us op-
ensure that the electronic payments you make online, by tion and click on “Local Offices.”
phone, or from a mobile device using the IRS2Go app are
safe and secure. Paying electronically is quick, easy, and
faster than mailing in a check or money order. The Taxpayer Advocate Service (TAS)
Is Here To Help You
What if I can’t pay now? Go to IRS.gov/Payments for
more information about your options. What Is TAS?

• Apply for an online payment agreement IRS.gov/ ( TAS is an independent organization within the IRS that
OPA) to meet your tax obligation in monthly install- helps taxpayers and protects taxpayer rights. TAS strives
ments if you can’t pay your taxes in full today. Once to ensure that every taxpayer is treated fairly and that you
you complete the online process, you will receive im- know and understand your rights under the Taxpayer Bill
mediate notification of whether your agreement has of Rights.
been approved.
• Use the Offer in Compromise Pre-Qualifier to see if How Can You Learn About Your Taxpayer
you can settle your tax debt for less than the full Rights?
amount you owe. For more information on the Offer in
Compromise program, go to IRS.gov/OIC. The Taxpayer Bill of Rights describes 10 basic rights that
all taxpayers have when dealing with the IRS. Go to
Filing an amended return. Go to IRS.gov/Form1040X
TaxpayerAdvocate.IRS.gov to help you understand what
for information and updates.
these rights mean to you and how they apply. These are
Checking the status of your amended return. Go to your rights. Know them. Use them.
IRS.gov/WMAR to track the status of Form 1040-X amen-
ded returns. What Can TAS Do for You?
It can take up to 3 weeks from the date you filed
TAS can help you resolve problems that you can’t resolve
! your amended return for it to show up in our sys- with the IRS. And their service is free. If you qualify for
CAUTION tem, and processing it can take up to 16 weeks.
their assistance, you will be assigned to one advocate
who will work with you throughout the process and will do
Understanding an IRS notice or letter you’ve re- everything possible to resolve your issue. TAS can help
ceived. Go to IRS.gov/Notices to find additional informa- you if:
tion about responding to an IRS notice or letter.
• Your problem is causing financial difficulty for you,
Responding to an IRS notice or letter. You can now your family, or your business;
upload responses to all notices and letters using the • You face (or your business is facing) an immediate
Document Upload Tool. For notices that require additional threat of adverse action; or
action, taxpayers will be redirected appropriately on
IRS.gov to take further action. To learn more about the • You’ve tried repeatedly to contact the IRS but no one
tool, go to IRS.gov/Upload. has responded, or the IRS hasn’t responded by the
date promised.
Note. You can use Schedule LEP (Form 1040), Re-
quest for Change in Language Preference, to state a pref- How Can You Reach TAS?
erence to receive notices, letters, or other written commu-
nications from the IRS in an alternative language. You may TAS has offices in every state, the District of Columbia,
not immediately receive written communications in the re- and Puerto Rico. To find your advocate’s number:
quested language. The IRS’s commitment to LEP
• Go to TaxpayerAdvocate.IRS.gov/Contact-Us;

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• Download Pub. 1546, The Taxpayer Advocate Service Low Income Taxpayer Clinics (LITCs)
Is Your Voice at the IRS, available at IRS.gov/pub/irs-
pdf/p1546.pdf; LITCs are independent from the IRS and TAS. LITCs rep-
• Call the IRS toll free at 800-TAX-FORM resent individuals whose income is below a certain level
(800-829-3676) to order a copy of Pub. 1546; and who need to resolve tax problems with the IRS. LITCs
can represent taxpayers in audits, appeals, and tax collec-
• Check your local directory; or
tion disputes before the IRS and in court. In addition,
• Call TAS toll free at 877-777-4778. LITCs can provide information about taxpayer rights and
responsibilities in different languages for individuals who
How Else Does TAS Help Taxpayers? speak English as a second language. Services are offered
for free or a small fee. For more information or to find an
TAS works to resolve large-scale problems that affect LITC near you, go to the LITC page at
many taxpayers. If you know of one of these broad issues, TaxpayerAdvocate.IRS.gov/LITC or see IRS Pub. 4134,
report it to TAS at IRS.gov/SAMS. Be sure to not include Low Income Taxpayer Clinic List, at IRS.gov/pub/irs-pdf/
any personal taxpayer information. p4134.pdf.

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                   To help us develop a more useful index, please let us know if you have ideas for index entries.
Index              See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
 
                                   Gross profit, defined 4
A                                  Guarantee  8                          R
Adjusted basis for installment                                           Related person:
  sale 4                           I                                      Land sale 16
Assistance (See Tax help)          Installment obligation:                Sale to 9
                                     Defined 3                           Reporting installment sale                      6 24, 
B                                    Disposition 17                      Repossession   18
Basis:                               Used as security 8                   Holding period for resale   21
  Adjusted 4                       Installment Sale 2                     Personal property 18
  Assumed mortgage   7             Interest:                              Real property  19
  Installment obligation 17 18,      Escrow account  9
  Installment sale 4                 Income  3                           S
  Repossessed property   19 21,      Reporting 25                        Sale at a loss 3
Bond 8                               Unstated 15                         Sale of:
Buyer's note 8                     Interest on deferred tax 22            Business  12
                                     Exceptions  22                       Home    25
C                                                                         Land between related persons                   16
Contingent payment sale    12      L                                      Partnership interest 13
Contract price 4                   Like-kind exchange 11                  Several assets  12 25, 
                                                                          Stock or securities 3
D                                  N                                     Sales by dealers 3
Dealer sales, special rule 3       Note:                                 Section 1274   16
Depreciation recapture income   9    Buyer's 8                            Exceptions   16
Disposition of installment           Third-party 8                       Section 483  16
  obligation 17                                                           Exceptions   16
                                   O                                     Selling expenses  4
E                                  Original issue discount  15           Selling price:
Electing out 6                                                            Defined 4
Escrow account  9                  P                                      Reduced   5
                                   Payments considered received        6 Single sale of several assets                   12 25, 
F                                    Buyer assumes debts   7             Special rules for capital gains 
Fair market value  3 19,             Buyer pays seller's expenses    7    invested in QOF   24
Figuring installment sale income 3   Mortgage assumed    7
Form:                                Pledge rule 8                       T
  4797 25                          Payments received  6                  Tax help 25
  6252 24                          Pledge rule 8                         Third-party note 8
  8594 13                          Publications (See Tax help)
  Schedule D (Form 1040)   25                                            U
                                                                         Unstated interest 15
G
Gross profit percentage  4

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