Reporting an Installment Sale

Form 6252. Use Form 6252 to report a sale of property on the installment method. The form is used to report the sale in the year it takes place and to report payments received in later years. Also, if you sold property to a related person, you may have to file the form each year until the installment debt is paid off, whether or not you receive a payment in that year.

Related person. If you sell marketable securities to a related person, complete Part III, Form 6252, for each year of the installment agreement, even if you do not receive a payment in that year.

If you sell property other than marketable securities to a related person, complete Part III for the year of sale and the 2 years following the year of sale, even if you do not receive a payment. After this 2-year period, you do not have to fill out Part III.

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 Rule 2--Sale and Resale under Sale to a Related Person, earlier, for more information.

Several assets. If you sell two or more assets in one installment sale, you may have to separately report the sale of each asset. The same is true if you sell all the assets of your business in one installment sale. See Single Sale of Several Assets and Sale of a Business, earlier.

If you have only a few sales to separately report, use a separate Form 6252 for each one. However, if you have to separately report the sale of multiple assets that you sold together, prepare only one Form 6252 and attach a schedule with all the information for each asset that is required by Form 6252. Complete Form 6252 by following the steps listed below.

1. Answer the questions at the top of the form.
2. In the year of sale, do not complete Part I. Instead, write "See attached schedule" in the margin.
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 of the exceptions under question 29 apply, enter the totals on lines 35, 36, and 37 for the disposed assets.

Special situations. If you are reporting payments from an installment sale as income in respect of a decedent or as a beneficiary of a trust, including a partial interest in such a sale, you may not be able to provide all the information asked for on Form 6252. To the extent possible, follow the instructions given above and provide as many details as possible in a statement attached to Form 6252.

For more information on how to complete Form 6252, see the form instructions.

Other forms. The gain from Form 6252 is carried over and entered on Schedule D (Form 1040), Capital Gains and Losses, Form 4797, Sales of Business Property, or both. These forms were discussed earlier under Reporting Installment Income.

Schedule D (Form 1040). Although the references in this publication are to the Schedule D for Form 1040, the rules discussed also apply to Schedule D for Forms 1041 (estates and trusts), 1065 (partnerships), 1120 or 1120-A (corporations), and 1120S (S corporations).

Form 4797. Form 4797 is used with estate and trust, partnership, corporation, and S corporation returns, as well as individual returns.

Examples

The following examples illustrate how to fill out Form 6252. Sample filled-in forms follow.

Example 1

On November 1, 2000, Mark Moore sold a lot that he had purchased on February 17, 1992, for $2,650. He borrowed more on the lot than he paid for it. At the time of the sale, $6,500 remained outstanding on the loan. In the sales contract, the buyer agreed to assume the loan and pay Mark $200 a month (plus 7% interest) for 3 years. In addition, the buyer made a down payment of $1,000 on the sale.

Mark fills out his 2000 Form 6252 as follows:

Line 1. Mark writes in a description of the lot sold.

Lines 2a and 2b. Mark enters the date he acquired the lot and the date he sold it.

Line 3. Because Mark sold the lot to Acme Design, his corporation, he checks the "Yes" box.

Line 4. The property Mark sold was not a marketable security (such as stock or a bond). He checks the "No" box. Because he sold the lot to a related person, he must complete Part III for 2000 and the next 2 years.

Part I. Mark uses this part of the form to figure the contract price and his gross profit on the sale.

Line 5. Mark enters the selling price, $14,700. This includes the $1,000 down payment, the $7,200 (36 x $200) in monthly payments he is to receive, and the $6,500 loan the buyer assumes.

Line 6. Mark enters the $6,500 in loans that the buyer assumes.

Line 7. Mark subtracts line 6 from line 5 and enters the difference, $8,200.

Line 8. Because he did not make any improvements to the lot, Mark's basis at the time of the sale was the lot's cost of $2,650.

Lines 9 and 10. Mark did not take depreciation deductions on the lot (land is never depreciable). The amount on line 8 carries over to line 10.

Line 11. Mark's only selling expenses were $150 in legal fees. If he had advertised the lot for sale or paid commission on the sale, he would have included those amounts also.

Line 12. Since no depreciation was claimed on the land, Mark has no recapture of income.

Line 13. Mark's installment sale basis is $2,800, the total of his adjusted basis in the property plus his selling expenses.

Line 14. Mark subtracts line 13 from line 5 and enters the result, $11,900.

Lines 15 and 16. The property Mark sold was not his home. He carries the amount on line 14 to line 16. This is his gross profit on the sale.

Line 17. Mark subtracts line 13 from line 6. The result, $3,700, is the amount by which the assumed loan is more than his installment sale basis in the property. This amount is treated as a payment in the year of sale on line 20.

Line 18. The contract price is the sum of all payments Mark will receive on the sale. This includes the down payment and all installment payments he will receive (line 7). It also includes the "payment" figured on line 17.

Part II. In this part, Mark figures the gain from the sale he must report for 2000.

Line 19. Mark's gross profit percentage is 100%. This is the gross profit on line 16, $11,900, divided by the contract price on line 18, also $11,900.

Line 20. Mark carries the amount he treats as a payment on line 17 to this line and it is added to the other payments he received in the year of sale.

Line 21. At the time of the sale, Mark received a down payment of $1,000. In December 2000, he received his first monthly installment payment. The total payment was $242, consisting of $42 interest (one month's interest on $7,200 figured at 7% a year) and $200 principal. This is the only installment payment he received in 2000. He enters the total received during 2000, $1,200 ($1,000 + $200), on this line. He reports the $42 interest on Form 1040.

Line 22. Mark enters $4,900, the sum of line 20 and line 21. This is the total of all payments he is considered to have received in 2000.

Line 23. Since 2000 is the year of sale, Mark makes no entry here.

Line 24. The gross profit percentage (line 19) is 100%. Therefore, the entire amount on line 22, $4,900, is taxable gain. Mark enters this amount on line 24.

Lines 25 and 26. Because the lot Mark sold was not depreciable property, he does not have to recapture any depreciation deductions as ordinary gain. All his gain on the sale is long-term capital gain. He carries the amount on line 26 to Schedule D (Form 1040) where it is included with other long-term capital gains.

Part III. Because Mark sold the lot to his corporation, a "related person," he must fill out this part. The property he sold was not a marketable security and he completes this part for 2000, 2001, and 2002.

Line 27. Mark enters the name, address, and employer identification number of the corporation that bought the lot.

Line 28. The corporation did not sell the lot in 2000. Mark checks the "No" box and he does not have to fill out the rest of Part III.

Example 2

In December 1999, Cora Blue sold a painting she inherited. The buyer paid her $700 down and gave her an installment note for $3,800. The note calls for quarterly payments of $530 until the $3,800 debt is paid off. Each $530 payment includes interest figured at 10% a year on the outstanding debt. She received her first 4 payments on the note in 2000. The principal and interest she received in each payment is given in the table below:

Cora rounds off cents on her tax return. She reports $314 interest as ordinary income on Form 1040. She completes Form 6252 as follows:

Line 1. Cora states the property she sold was an oil painting.

Lines 2a and 2b. She enters the date she acquired the painting and the date she sold it.

Line 3. The buyer was not related to Cora. She checks the "No" box.

Line 4. Because she checked "No" to question 3, Cora does not have to answer this question or fill out Part III of the form.

Part I. Cora completed Part I of her Form 6252 for the year of sale, 1999. She does not fill it out for the remaining years of the installment sale.

Part II. This is the only part of Form 6252 that Cora fills out.

Line 19. Cora figured a gross profit percentage of 22.7% on her 1999 Form 6252. She uses the same percentage on her 2000 Form 6252.

Line 20. Since this is not the year of sale, Cora enters zero on this line.

Line 21. Cora enters the total amount (minus interest) that she received on the sale in 2000, $1,806.

Line 22. The amount on line 21 carries over to line 22.

Line 23. Before 2000, Cora received only the $700 down payment.

Line 24. Cora multiplies the gross profit percentage of 22.7% (line 19), by the amount she was paid in 2000 (line 22), $1,806. The result, $410, is the gain she had on the sale in 2000.

Lines 25 and 26. Cora did not use the painting in a business. It was not depreciable and the recapture rules do not apply. The amount on line 24 carries over to line 26. Her gain is long-term capital gain. She carries the amount on line 26 to Schedule D (Form 1040), where it is included with other long-term capital gains.

• Form 6252 for Mark Moore
• Form 6252 for Cora Blue

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