Get Number 20123401f - Irs

Installment sales require the buyer to make regular payments—i.e. installments. This method is useful for taxpayers looking to defer capital gains to future years. These types of sales are common with real estate.

The installment method of reporting is generally very advantageous for taxpayers selling eligible property2 w ith deferred payment terms. S corporation stock is eligible property in most cases, and it is common to use deferred payment terms in sales of such stock.

You can't use the installment method to report gain from the sale of inventory or stocks and securities traded on an established securities market. You must report any portion of the gain from the sale of depreciable assets that's ordinary income under the depreciation recapture rules in the year of the sale.

Key Takeaways. The IRS allows taxpayers to defer a portion of the gain on the sale of an investment property with an installment sale agreement that can reduce the seller's taxes on the profit. Installment sale income is broken down into gain, principal (or, your adjusted basis in the property), and interest.

One disadvantage of an installment sale — as opposed to gifting property — is that you'll owe tax on any capital gains recognized from the sale. Fortunately, you can spread this tax liability over the life of the installment note.

Stocks, bonds, other securities, inventory, or property a dealer sells cannot be sold using the installment sales method. Two of the payments will be made in the year you sold it, and two will be made the next year.