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What are the tax implications of installment sales?

An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. This method of reporting gain is called the installment method.

You cannot apply the installment method to report a loss. You can choose to report all of your gain in the year of sale. Revenue is considered taxable income once cash has been received when using the installment sales method.

Furthermore, interest will be required by the seller when applying the Installment Sales Method. The interest would be reported separately from every installment payment and would be recognized as ordinary income.

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