Form 6252: Installment Sale Income

What Form 6252 is

Form 6252 is the IRS form used to report income from an installment sale—i.e., a sale of real or personal property in which at least one payment is received after the tax year of sale. It lets taxpayers spread gain over multiple years as payments are received when the installment method applies.

When the installment method applies
– Use the installment method when you realize a gain on the sale and you will receive payments in later tax years.
– Do NOT use Form 6252 when:
– The sale produces no gain (report as required by other rules, e.g., Form 4797 for business property).
– The seller is a dealer who ordinarily sells that type of property in the ordinary course of business.
– The sale is of stock or securities traded on an established securities market (those are treated as received in the year of sale).

Who must file
– Any taxpayer (individual, corporation, etc.) who recognizes a gain on an installment sale and is using the installment method must file Form 6252 for the applicable years.

What the form reports
– Basic identification (name, EIN or SSN).
– Property description and acquisition/sale dates.
– Part I: Gross profit, contract price, and computation used for all years of the installment agreement.
– Part II: Installment sale income to be reported for the current year.
– Part III: Related-party installment sale information (not required if you received the final payment in the tax year).

How to file
– Complete Form 6252 and attach it to your federal income tax return for the year you report installment income.
– The form is available on the IRS website.

Special considerations: Qualified Opportunity Funds (QOF)
– Under rules created after the 2017 Tax Cuts and Jobs Act, taxpayers may be able to defer some or all capital gains by investing in a Qualified Opportunity Fund (QOF).
– Key requirements:
– Investment must occur within 180 days of the sale generating the gain.
– The deferral election is made on Form 8949 and reported with your return.
– Investment in the QOF must be an equity interest (not a debt instrument).
– While holding a QOF investment, taxpayers must also file Form 8997 annually.

Related forms
– Form 8949: Sales and Other Dispositions of Capital Assets (used to report and elect QOF deferral).
– Form 8997: Initial and Annual Statement of Qualified Opportunity Fund Investments (filed each year you hold a QOF investment).
– Form 4797: Sales of business property (when installment reporting is not appropriate).

Key takeaways
– File Form 6252 if you use the installment method to report gain on a sale and receive payments in later tax years.
– Do not file if there is no gain, if you are a dealer in the property sold, or if the sale involves market-traded securities.
– Consider QOF rules and related filing requirements if you plan to defer gains by investing in an Opportunity Fund.

Reference
– IRS Form 6252 (Installment Sale Income)