Installment Sale
Installment Sale means:
a sale in which a seller accepts a mortgage for part of the sale. With an installment sale, the taxpayer agrees to have the purchaser pay him or her over a number of years, and he or she reports the profit on the sale as he or she receives the money instead of all at once in the year of the sale. The tax on any gain is paid as the mortgage principal is collected. See also contract price; gross profit ratio; imputed interest.
Example of Installment Sale:
Learn more about tax examples, explanations and calculations here. Peter sells for $100,000 land that she bought 3 years ago for $40,000. His gain is $60,000. He received 20% ($20,000) as a cash down payment and a 80% ($80,000) purchase money mortgage. He will report 10% of the gain in the year of sale and the balance as he collects the principal of the purchase money mortgage. To do so, on her tax return he reports the transaction as an installment sale. Former IRC (check if this IRC provision is current here) §§453 and 453A.
Sale for which the consideration is received by way of more than one payment or instalment.
Description and Definition of Installment Sale
A sale in which you receive the proceeds over a period of time. Unless you elect out you will report the gain on that transaction as you receive it through the series of payments. At least one payment must be received after the end of the tax year in which the sale occurs. The installment method does not apply to year-end sales of publicly traded securities. Dealers may not use the installment method. If you made an installment sale before May 7, 1997 the part of the payments received on or after that date that represent long term capital gains qualify for the lower tax rate.
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