Key Takeaways

  • Form 6252 reports income from installment sales where payments are received over time rather than in one lump sum.
  • You must file a separate Form 6252 for each property sold under the installment method.
  • The form helps determine how much of each payment is gain, interest, or return of capital.
  • Form 6252 must be filed every year until all payments are received—even if no payments occur in a given year.
  • Depreciation recapture is not eligible for installment reporting—it must be reported as ordinary income in the year of sale.
  • Taxpayers can elect out of the installment method to report the full gain in the year of sale if beneficial.

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.

How Form 6252 Works

Form 6252, Installment Sale Income, is used when a seller receives at least one payment after the tax year in which a property is sold. This method helps align tax payments with actual income received. Instead of paying tax on the full gain in one year, sellers recognize a portion of the gain each year based on payments received.

The form consists of three main sections:

  1. Gross Profit and Contract Price – Calculates your total gain by comparing the selling price to your property’s adjusted basis.
  2. Installment Sale Income – Determines how much of each year’s payment is taxable.
  3. Related Party Installment Sale Income – Used when selling to family members or entities under your control.

Each section helps calculate the gross profit percentage, which represents the taxable portion of each payment received during the year.

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.

Who Must File Form 6252

You must file Form 6252 if you meet both of the following conditions:

  • You sold property at a gain, and
  • You are receiving at least one payment after the year of sale under an installment agreement.

Form 6252 is not required for:

  • Sales of stocks, securities, or dealer property held for sale in the ordinary course of business.
  • Transactions that don’t produce a gain, even if payments are received later.
  • Property sales reported in full on Form 4797 or Schedule D when you elect out of the installment method.

A separate Form 6252 must be filed for each installment sale. Taxpayers typically continue to file the form annually until the buyer fully pays for the property.

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.

How to Complete Form 6252 (Step-by-Step)

Filling out Form 6252 involves a few key steps:

  1. Part I – General Information
    • Describe the property sold.
    • Enter the date of sale, buyer’s information, and total selling price.
  2. Part II – Gross Profit and Contract Price
    • Compute the adjusted basis, selling expenses, and gross profit.
    • Determine the gross profit percentage (gross profit ÷ contract price).
  3. Part III – Installment Sale Income
    • Apply the gross profit percentage to payments received during the year.
    • Report the result as taxable gain.
  4. Transfer Figures
    • Gains from investment property go on Schedule D (Form 1040).
    • Gains from business property go on Form 4797.

Remember: Interest on installment obligations is not part of the gain. It must be reported separately on Schedule B (Form 1040) or the equivalent business return.

Common Mistakes and Key Considerations

Avoid these common errors when filing Form 6252:

  • Forgetting annual filings: You must file the form every year you receive payments, even if no new payments are made.
  • Omitting depreciation recapture: Any depreciation taken on property (under IRC §§1245 or 1250) must be reported as ordinary income in the year of sale and cannot be deferred.
  • Failing to include interest: If no interest is stated in the contract, the IRS may impute interest, resulting in taxable “unstated interest.”
  • Misreporting related-party sales: Extra scrutiny applies when selling to family members or entities under your control.

Taxpayers can also elect out of the installment method by reporting the full gain in the year of sale. This may be beneficial if you expect higher tax rates in future years.

Frequently Asked Questions

  1. Do I need to file Form 6252 every year?
    Yes. You must file Form 6252 for each year you receive an installment payment until the property is fully paid off.
  2. What if I don’t make a profit on the sale?
    If your sale doesn’t produce a gain, you don’t need to file Form 6252—even if you receive payments later.
  3. Can I use Form 6252 for stock or security sales?
    No. Sales of publicly traded stocks or securities do not qualify for installment reporting.
  4. What happens if I forget to include interest income?
    Interest must be reported separately. Failure to report it can lead to penalties or interest assessments by the IRS.
  5. When might I elect out of the installment method?
    You may choose to report the full gain immediately if you expect higher future tax rates or want to simplify recordkeeping.

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