What is Form 6252: Installment Sale Income

Form 6252: Installment Sale Income is a tax form distributed by the Internal Revenue Service (IRS) that is used to report income from a sale of real or personal property coming from an installment sale with the installment method. An installment sale occurs when at least one payment from the disposition of property is received after the end of the tax year. An installment sale, in general, does not include disposition of personal property from a person who regularly sells that same type of property (like a real estate agent or broker) or property that is sold to customers in the ordinary course of the taxpayer’s occupation, such as with farmland. However, in some situations, when there are gains on the dispositions of the property, the installment method may be utilized. Proceeds from an installment sale can come in later tax years, which are reported unless the taxpayer is not using the installment method.

BREAKING DOWN Form 6252: Installment Sale Income

Form 6252: Installment Sale Income depicts income from the sale of a depreciable property that is sold to a related party is not allowed to be reported using the installment method unless the seller can prove that the purpose of the sale was not an avoidance of income tax

The installment method also encompasses the use of installment obligations pledged as security on a debt, with the net proceeds of the secured debt to be treated as payment on the installment obligation. However, in those cases, the amount that is being treated as payment cannot exceed the total installment contract price over any payments received under the contract before the secured debt was obtained. Or, in other words, the transaction must be kept to a fair exchange.

Who Should File a Form 6262: Installment Sale Income

Essentially, anytime there is a gain on property in the installment method, Form 6262 might be necessary. However, taxpayers do not have to file Form 6252 if the sale of the property does not result in a gain for them, even if their payments are received in a subsequent tax year. If this is the case, a business should report the sale using Form 4797.

Additionally, Form 6252 is not needed to report sales during tax year of stock or securities traded on an established securities market; those sales should be treated as if they were received the same year the same was made.