Updated October 21, 2026. Quick answer: Publication 537 is the IRS guide to installment sales, where at least one payment arrives after the year of the sale. The web edition is for 2025 returns. It says you may be able to report part of your gain as each payment is received, and that the installment method cannot be used to report a loss.
Quick reference
| Item | As the IRS publication states it |
|---|---|
| Pledge rule applies if the selling price of the property is over (Installment Obligation Used as Security) | $150,000 |
| Interest on deferred tax, sales price over (Interest on Deferred Tax) | $150,000 |
| Interest on deferred tax, total nondealer installment obligations outstanding more than (Interest on Deferred Tax) | $5 million |
| Late election out of the installment method by amended return (Automatic 6-month extension) | 6 months |
| Sale to a related person, second disposition within (Sale to a Related Person) | 2 years |
| Gross profit percentage in the IRS example (Figuring Installment Sale Income) | 25% |
What the publication covers
The introduction says “An installment sale is a sale of property where you receive at least one payment after the tax year of the sale.” It continues “If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment.” The IRS page cover line reads “For use in preparing 2025 Returns”.
The introduction also tells readers where to start. It says “If you sell your home or other nonbusiness property under an installment plan, you may need to read only the General Rules section, later.”
Parts of the publication in plain words
- What’s an Installment Sale, including the kinds of sales where the method cannot be used.
- General Rules, then Figuring Installment Sale Income: interest income, adjusted basis, gross profit, contract price and the gross profit percentage.
- Other Rules: electing out of the installment method, payments received or considered received, the pledge rule, escrow accounts, depreciation recapture income, sales to related persons, like-kind exchanges, contingent payment sales, and the sale of a business.
- Unstated Interest and Original Issue Discount (OID).
- Interest on Deferred Tax, Special Rules for Capital Gains Invested in QOF, and Reporting an Installment Sale on Form 6252.
Worksheets and forms inside it
- Worksheet A, Figuring Adjusted Basis and Gross Profit Percentage
- Worksheet B, New Gross Profit Percentage, Selling Price Reduced
- Form 6252, Installment Sale Income, with the gain then carried to Schedule D (Form 1040), Form 4797, or both
On this site, Form 6252 has its own page, and electing out of the installment method is covered separately.
The figures that matter
On how the percentage works, the publication says “This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price.”
Its example reads “Your gross profit percentage is 25% ($1,500 ÷ $6,000).”
On the pledge rule, the IRS publication says “This is known as the pledge rule, and it applies if the selling price of the property is over $150,000.”
On interest on deferred tax, the first of two conditions reads “The property had a sales price over $150,000.” The second reads “The total balance of all nondealer installment obligations arising during, and outstanding at the close of, the tax year is more than $5 million.”
On the election out of the method, the timing rule reads “Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place.” A late election is covered by “If you timely file your tax return without making the election, you can still make the election by filing an amended return within 6 months of the due date of your return (excluding extensions).”
For related persons, one condition reads “The related person disposes of the property within 2 years of the first disposition.”
Where it points elsewhere
Readers who sold stock should note that “You can’t use the installment method to report gain from the sale of stock or securities traded on an established securities market.” For where the gain lands on a return, see Form 4797, Schedule D, and Form 8949.
Where this comes from
The IRS page About Publication 537 opens with “This publication discusses the general rules that apply to using the installment method and more complex rules when certain conditions exist or certain types of property are sold.” It links the PDF and eBook editions and the earlier revisions of the publication.
This page describes the web edition of Publication 537 (2025), Installment Sales, as served on irs.gov on October 21, 2026. The IRS can revise a publication after we read it, and the IRS page controls. General information, not tax or legal advice.
Common mistakes
- Using the installment method for a sale at a loss. The IRS publication says “You can’t use the installment method to report a loss.”
- Treating the installment method as optional by default. The publication says “If a sale qualifies as an installment sale, the gain must be reported under the installment method unless you elect out of using the installment method.”
- Assuming interest only matters in years a payment arrives. The publication says “You may have interest income in years you do not receive a payment.”
- Applying the method to a stock sale on an exchange. The source rules that out for stock or securities traded on an established securities market.
Related: IRS publications by number, Form 6252, Electing out of the installment method, Installment sale recapture in the year of sale, Form 4797, Schedule D (Form 1040), and Form 8949.
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Answer againSources
- IRS, Publication 537 (2025), Installment Sales (irs.gov): https://www.irs.gov/publications/p537
- IRS, About Publication 537, Installment Sales (irs.gov): https://www.irs.gov/forms-pubs/about-publication-537
Read from the IRS pages linked above on October 21, 2026. General information, not tax or legal advice. The IRS publication and the instructions for your own form control, and your own facts decide the outcome.