Previous Page: Publication 537 - Installment Sales - Other Rules Next Page: Publication 537 - Installment Sales - How To Get Tax Help Use   to find additional instances of index items.

Taxmap/pubs/p537-003.htm#TXMP7cf88363 Reporting an   Installment Sale

Installment Sale

Taxmap/pubs/p537-003.htm#TXMP4bc8f704 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.

Taxmap/pubs/p537-003.htm#TXMP7407982e Related person.

If you sold property to a related person during the year, complete lines 1 through 4 and Parts I, II, and III of Form 6252.

If you sold a marketable security to a related party after May 14, 1980, and before January 1, 1987, complete Form 6252 for each year of the installment agreement, even if you did not receive a payment. Complete lines 1 through 4 each year. Complete Part II for any year in which you receive a payment. Complete Part II for each year except for the year in which you receive the final payment.

If you sold property other than a marketable security to a related party after May 14, 1980, complete Form 6252 for the year of the sale and for the 2 years after the year of sale, even if you did not receive a payment in those years. Complete lines 1 through 4. Complete Part II for each of the 2 years after the year of sale in which you receive a payment. Complete Part III for each of the 2 years after the year of the sale unless you received the final payment during the year.

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 Sale and Later Disposition under Sale to a Related Person, earlier, for more information.

Taxmap/pubs/p537-003.htm#TXMP56f0f81a 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.

Taxmap/pubs/p537-003.htm#TXMP5d2c6e69 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.

Taxmap/pubs/p537-003.htm#TXMP5afbbd31 Other forms.

The gain from Form 6252 is 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 Sale Income.

Taxmap/pubs/p537-003.htm#TXMP2bb02ca7 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).

Taxmap/pubs/p537-003.htm#TXMP72bb5977 Form 4797.

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

Taxmap/pubs/p537-003.htm#TXMP2300a28d Examples

Examples

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

Taxmap/pubs/p537-003.htm#TXMP7e9fe1e1 Example 1

On November 1, 2004, Mark Moore sold a lot for $14,700, which included the outstanding balance on a loan. He had purchased the lot on February 17, 1995, 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. The buyer made a down payment of $1,000 on the sale and made a $242 payment in December, $42 of which was interest.

Mark fills out his 2004 Form 6252 as follows:

Taxmap/pubs/p537-003.htm#TXMP6014295c Line 1.

Mark enters a description of the lot sold.

Taxmap/pubs/p537-003.htm#TXMP08fe1e66 Lines 2a and 2b.

Mark enters the date he acquired the lot and the date he sold it.

Taxmap/pubs/p537-003.htm#TXMP0b8bd85e Line 3.

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

Taxmap/pubs/p537-003.htm#TXMP610023a2 Line 4.

The property Mark sold was not a marketable security (such as stock or a bond). He checks the No box. He sold the lot to a related person, so he must complete Part III for 2004 and the next 2 years.

Taxmap/pubs/p537-003.htm#TXMP75d05854 Part I.

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

Taxmap/pubs/p537-003.htm#TXMP2a9239c4 Line 5.

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

Taxmap/pubs/p537-003.htm#TXMP01bf6a07 Line 6.

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

Taxmap/pubs/p537-003.htm#TXMP18a45b46 Line 7.

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

Taxmap/pubs/p537-003.htm#TXMP60c3b877 Line 8.

He did not make any improvements to the lot, so Mark's basis at the time of the sale was the lot's cost of $2,650.

Taxmap/pubs/p537-003.htm#TXMP669f5604 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.

Taxmap/pubs/p537-003.htm#TXMP58a4d090 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.

Taxmap/pubs/p537-003.htm#TXMP73898353 Line 12.

No depreciation was claimed on the land, so Mark has no recapture of income.

Taxmap/pubs/p537-003.htm#TXMP6a92b212 Line 13.

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

Taxmap/pubs/p537-003.htm#TXMP25d324d5 Line 14.

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

Taxmap/pubs/p537-003.htm#TXMP3b2dd6f7 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.

Taxmap/pubs/p537-003.htm#TXMP0efe7716 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.

Taxmap/pubs/p537-003.htm#TXMP76999427 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.

Taxmap/pubs/p537-003.htm#TXMP6ec390e5 Part II.

In this part, Mark figures his installment sale income. For 2004, his installment sale income is composed of two parts.

• Any ordinary income from the recapture of depreciation.
• Any gain remaining after subtracting that ordinary income from the installment sale income.

Taxmap/pubs/p537-003.htm#TXMP0ae4117e 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.

Taxmap/pubs/p537-003.htm#TXMP0505cca7 Line 20.

Mark carries the amount he treats as a payment on line 17 ($3,700) to this line and it is added to the other payments he received in the year of sale.

Taxmap/pubs/p537-003.htm#TXMP0c1990b5 Line 21.

At the time of the sale, Mark received a down payment of $1,000. In December 2004, 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 2004. He enters the total received during 2004, $1,200 ($1,000 + $200), on this line. He reports the $42 interest on Form 1040.

Taxmap/pubs/p537-003.htm#TXMP28185d4d 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 2004.

Taxmap/pubs/p537-003.htm#TXMP2e491aa0 Line 23.

2004 is the year of sale, so Mark makes no entry here.

Taxmap/pubs/p537-003.htm#TXMP17150c56 Line 24.

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

Taxmap/pubs/p537-003.htm#TXMP5ec1b710 Lines 25 and 26.

The lot Mark sold was not depreciable property, so he does not have to recapture any depreciation deductions as ordinary gain. All of the installment sale income is long-term capital gain. He enters zero (-0-) on line 25. He carries the amount on line 26 to Schedule D (Form 1040) where it is included with other long-term capital gains.

Taxmap/pubs/p537-003.htm#TXMP2e4ceb87 Part III.

Mark sold the lot to his corporation, a related person, so he must fill out this part. The property he sold was not a marketable security and he completes this part for 2004, 2005, and 2006.

Taxmap/pubs/p537-003.htm#TXMP0cb8c94f Line 27.

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

Taxmap/pubs/p537-003.htm#TXMP74df2a80 Line 28.

The corporation did not sell the lot in 2004. Mark checks the No box and he does not have to fill out the rest of Part III.

Taxmap/pubs/p537-003.htm#TXMP18694fa5 Example 2

In December 2003, Cora Blue sold a painting she inherited in 1993. 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 2004. The principal and interest she received in each payment is given in the table below:

Payment	Interest	Principal
First	$ 95.00	$ 435.00
Second	84.13	445.87
Third	72.98	457.02
Fourth	61.55	468.45
	$313.66	$1,806.34

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

Taxmap/pubs/p537-003.htm#TXMP489fb573 Line 1.

Cora states the property she sold was an oil painting.

Taxmap/pubs/p537-003.htm#TXMP7443ceac Lines 2a and 2b.

She enters the date she acquired the painting and the date she sold it.

Taxmap/pubs/p537-003.htm#TXMP27f0620f Line 3.

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

Taxmap/pubs/p537-003.htm#TXMP0262bf49 Line 4.

She checked No to question 3, so Cora does not have to answer this question or fill out Part III of the form.

Taxmap/pubs/p537-003.htm#TXMP073e598f Part I.

Cora completed Part I of her Form 6252 for the year of sale, 2003. She does not fill it out for the remaining years of the installment sale.

Taxmap/pubs/p537-003.htm#TXMP7baf764b Part II.

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

Taxmap/pubs/p537-003.htm#TXMP7eb374d5 Line 19.

Cora figured a gross profit percentage of 22.7% on her 2003 Form 6252. She uses the same percentage on her 2004 Form 6252.

Taxmap/pubs/p537-003.htm#TXMP22d1839d Line 20.

This is not the year of sale, so Cora enters zero on this line.

Taxmap/pubs/p537-003.htm#TXMP4b97e469 Line 21.

Cora enters the total amount (minus interest) that she received on the sale in 2004, $1,806.

Taxmap/pubs/p537-003.htm#TXMP4d92dda7 Line 22.

The amount on line 21 carries over to line 22.

Taxmap/pubs/p537-003.htm#TXMP3d2a7873 Line 23.

Before 2004, Cora received only the $700 down payment.

Taxmap/pubs/p537-003.htm#TXMP27d983e9 Line 24.

Cora multiplies the gross profit percentage of 22.7% (line 19), by the amount she was paid in 2004 (line 22), $1,806. The result, $410, is her installment sale income for 2004.

Taxmap/pubs/p537-003.htm#TXMP0f94a0da Lines 25 and 26.

Cora did not use the painting in a business. It was not depreciable and the recapture rules do not apply. She enters zero (-0-) on line 25. 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.

Taxmap/pubs/p537-003.htm#TXMP6d3dd8d7

Form 6252 for Mark Moore  

Taxmap/pubs/p537-003.htm#TXMP1a3ae841

Form 6252 for Cora Blue  

Previous Page:  Publication 537 - Installment Sales - Other Rules Next Page:  Publication 537 - Installment Sales - How To Get Tax Help Use     to find additional instances of index items.