Installment Sales
If you sell property at a gain and you will receive more payments in future years, you may use the installment method to defer tax, unless you're a dealer of the property sold OR the property is publically traded securities. This method allows you to report profits as taxable in the year the installment is received.


Gross Profit Percentage = Profit/Sales Price (contract price)

Profit to Report as Taxable = Gross Profit Percentage x Installment Payment

If you have large losses in the year of an installment sale, the installment method may not be the best method to report. In this case, the taxpayer would want to report the full gain in the year of sale so the gain can be offset by the losses.

Exception: The original seller must recognize all gains deferred by an installment sale, if he or she sells to a family member who in turns sells the property within two years.



Inventory Valuation and Flow Methods

Related Articles
  1. Investing

    Avoiding A Big Tax Bill On Real Estate Gains

    Installment sales allow sellers to defer taxes on real estate profits.
  2. Insights

    Long-Term Installment Loans: Are They Worth It?

    Long-term installment loans help borrowers finance major purchases or consolidate credit card debt. Learn how they work, and identify their pros and cons.
  3. Personal Finance

    Explaining Equated Monthly Installments

    An equated monthly installment is a fixed payment a borrower makes to a lender on the same date of each month.
  4. Taxes

    Form 9465: Don't Pay Your Back Taxes Without It

    This form can lighten your tax load if you owe Uncle Sam.
  5. Insurance

    Hiring a Contractor vs. DIY: Cost – Benefits

    When you want to change something about your home, the first question to ask yourself is whether it’s more cost-effective to DIY or hire a professional.
  6. Taxes

    How To Negotiate Back Taxes With The IRS

    Recently, the IRS has been more amenable to working out late tax payments. But you have to address the problem up front, and don’t keep Uncle Sam waiting on his tax money.
  7. Investing

    Solar Industry Slowdown Catches Up With SolarCity

    Lower costs are putting the solar installation business under pressure.
  8. Investing

    Solar Wars: Solar City vs. Verengo Solar vs. Sungevity

    Read about three important players in the growing solar-energy services market, and learn more about their business operations and market positions.
Frequently Asked Questions
  1. Who is eligible for Canada Pension Plan benefits?

    Learn more about the Canada Pension Plan, who contributes to the plan and who can receive standard, disability, early retirement ...
  2. Who are Monsanto's main competitors?

    Learn about Monsanto Company's two main operating divisions and its main competitors within each sector, including The Mosaic ...
  3. What is an assumable mortgage?

    The purchase of a home is a very expensive undertaking and usually requires some form of financing to make the purchase possible. ...
  4. Do I have to complete all exams within a certain period of time to receive the CFA charter?

    According to the CFA Institute, a candidate can take as much time as necessary to complete all three levels of the CFA program.Therefore, ...
Trading Center