Form 6252: Everything You Need to Know
IRS Tax Form 6252 includes the earnings in your taxes for the year in which the sale happened. 4 min read
What Is IRS Tax Form 6252?
IRS Tax Form 6252 is a form that you must use to report income you've acquired from selling something for a price higher than what you originally paid for the item. You will also need to use this form to report a sale of property that was sold using an installment plan. Any income earned from this installment plan will be reported on Form 6252.
As with many tax forms, Form 6252 is very lengthy and can take some time to fill out. In addition, the sections of the form that you need to fill out can differ from the year where the sale occurred to following years.
For the most part, you will use this form in the year that you first made the sale and then in any following years where you continue to receive payments from the sale.
There are certain circumstances where you will use IRS Form 4797, which is used for sales of business property, or your Schedule D form instead of Form 6252. Situations where you should not use form 6252 include:
- Reporting sales of securities or stocks on established markets. These earnings should be treated as if they were received during the tax year.
- When you decide not to report sales made with installment payments. You would instead use Form 4797 or the Schedule D form to report the full amount of the sale.
When you're filling out Form 6252, you need to be sure that you're including the right information, such as:
- A description of the product, how you acquired the product, and the date you made the sale
- What price you sold the product for
- Any debts or mortgages that were assumed by the buyer
- The cost of the property
- Allowed depreciation
- Any sales expenses or commissions
- All payments received during the current year or years prior
Failing to file this form with the IRS can cost you tax credits and may result in noncompliance with tax law, which is often punishable with a fine or penalty.
What Is an Installment Sale?
When you report a sale as an installment sale, it means that you will receive one or more payments after the tax year where the sale took place. You will not need to follow the rules for an installment sale if you choose not to use this sale method or if the transaction is not applicable to installment sale rules.
It is also possible for you to elect out, which means reporting all the future gain from your sale in the tax year where the initial sale occurred. People who choose to elect out will report their sale on the Schedule D form. Also, electing out means that the installment sale rules cannot be used for financial losses.
Certain types of property cannot be sold using installment sales, including:
- Sales made by dealers
- Inventory sales
- Securities and stocks
- Installment obligation
Even if you receive payment after the year of sale for inventory of personal property, this does not qualify for installment sale rules. Also, when it comes to dealer sales, a person that regularly sells their personal property does not qualify for installment sale rules, even if the property is sold on an installment plan. This also applies to real estate property that is held for later sale to customers during normal business transactions.
You should be aware, however, that these rules are not applicable when an installment sale is used for a piece of property related to farming. It is also popular for people seeking to sell residential lots or time-shares to treat these sales as installment sales as long as they pay a special interest charge.
Gains made from the sale of stocks and securities cannot be reported using the installment method. You are required to report the whole gain during the year where the trade took place. When using an installment obligation, future payments may be in the form of deeds, land contracts, mortgages, or any other record that proves the debt of the buyer.
Purpose of Form 6252
Form 6252 is meant to help you separate the money you earned in a tax year into gains, interest, and returns on capital. This will allow you to correctly report your income on your annual tax return. You are required to file Form 6252 for every year where you receive an installment sale payment. During the year the sale was made, use lines 1 through 4 on the form. In subsequent years, fill out these same lines, as well as Parts I and II.
If you need help with your Form 6252, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.