Installment Sales and Form 6252: The Basics
Published November 6, 2026
Sometimes you sell property and get paid over more than one year. The tax rules for that kind of sale are called the installment method. Publication 537 explains the rules. This guide is general information. It is not advice about your return.
What counts as an installment sale
Publication 537 says an installment sale is a sale of property where you receive at least one payment after the tax year of the sale. If you receive all of the money in the year of sale, the installment rules do not apply.
Some sales are never installment sales. Publication 537 says regular sales of inventory are not installment sales, even if you get a payment later. Sales of personal property by a dealer who sells that type of property on an installment plan are not installment sales either. The same rule applies to real property a dealer holds for sale to customers. Publication 537 says the dealer rule does not apply to farm property.
How the gain is spread out
Under the installment method, you may report part of your gain each time you receive a payment. Publication 537 uses a gross profit percentage. You divide the gross profit by the contract price. The contract price is the selling price minus the mortgage the buyer takes over. Then you apply that percentage to each payment you receive. The result is the part of that payment that is gain.
Here is a made-up example, not from the IRS. You sell land for $100,000. Your basis is $60,000. The gross profit is $40,000, so the gross profit percentage is 40%. If the buyer pays you $10,000 in one year, $4,000 of that payment is gain for that year.
Publication 537 says the gross profit percentage generally stays the same for each payment. Some situations change it, so read the publication before you assume it stays the same.
When the buyer's note is used for a loan
If you use the installment obligation to secure a debt, the net loan proceeds may be treated as a payment you received. Publication 537 calls this the pledge rule. It applies when the selling price is over $150,000. It does not apply to farm property, personal-use property, or certain sales of timeshares and residential lots. The treated payment is counted as received on the later of two dates: the date the debt becomes secured, or the date you receive the loan proceeds.
Losses and the choice to report all at once
You cannot use the installment method to report a loss. You can also choose to report all of your gain in the year of sale instead. Publication 537 says so in its introduction.
Depreciation recapture comes first
If you claimed depreciation on the property, you must report depreciation recapture income in the year of sale. Publication 537 says this applies whether or not a payment came in that year. The recapture is figured on Form 4797.
Reporting on your return
Publication 537 says you generally use Form 6252 to report installment sale income from sales of real or personal property. The income also goes on Schedule D (Form 1040), Form 4797, or both. Publication 537 notes that if the property was your main home, you may be able to exclude part or all of the gain.
Some gains can also be subject to the net investment income tax, which is a separate tax with its own rules.
Simple steps
- Check the sale terms. Will you get at least one payment after the year of sale?
- Figure the gross profit percentage, using the contract price.
- Apply that percentage to each payment you receive.
- Report any depreciation recapture in the year of sale.
Upload your documents and answer a few simple questions. Your preparer reviews every deduction and credit and lets you know when your return is ready to sign.
Sources: Sources: IRS, Publication 537 (2025), Installment Sales (https://www.irs.gov/pub/irs-pdf/p537.pdf) This is general information, not advice about your specific return.
