Updated October 24, 2026. Quick answer: Tax Topic 705 is the IRS page on installment sales. It defines an installment sale as a sale of property where you receive at least one payment after the tax year of the sale. Gain is reported under the installment method unless you elect out.
Quick reference
| Item | What the IRS topic says |
|---|---|
| What it is | “An installment sale is a sale of property where you’ll receive at least one payment after the tax year in which the sale occurs.” |
| Default method | “You’re required to report gain on an installment sale under the installment method unless you “elect out”” |
| Not permitted | “Installment method rules don’t apply to sales that result in a loss.” |
| Total gain | “Your total gain on an installment sale is generally the amount by which the selling price of the property you sold exceeds your adjusted basis in that property.” |
| Form to use | “Use Form 6252, Installment Sale Income to report an installment sale in the year the sale occurs and for each year of the installment obligation.” |
| Interest | “You generally report interest on an installment sale as ordinary income in the same manner as any other interest income.” |
The installment method and electing out
The topic begins with a definition. The IRS topic says “An installment sale is a sale of property where you’ll receive at least one payment after the tax year in which the sale occurs.”
On the default rule, it says “You’re required to report gain on an installment sale under the installment method unless you “elect out” on or before the due date for filing your tax return (including extensions) for the year of the sale.” It describes how: “You may elect out by reporting all the gain as income in the year of the sale in accordance with your method of accounting”. See our page on electing out of the installment method.
When the method does not apply
The topic lists situations. It says “Installment method rules don’t apply to sales that result in a loss.” It also says “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.”
For depreciable assets, it says “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.” Our page on installment sale recapture in the year of the sale covers that point.
Figuring and reporting the gain
On the amount of gain, the topic says “Your total gain on an installment sale is generally the amount by which the selling price of the property you sold exceeds your adjusted basis in that property.”
On what goes on the return each year, it says “Under the installment method, you include in income each year only the part of the gain you receive or are considered to have received.” It adds “You don’t include in income the part of the payment that’s a return of your basis in the property.”
The form is named in the topic: “Use Form 6252, Installment Sale Income to report an installment sale in the year the sale occurs and for each year of the installment obligation.” See Form 6252 and Form 4797. For interest, the topic says “You must use the applicable federal rate (AFR) to figure the amount of stated principal recharacterized as unstated interest or original issue discount.”
Where this comes from
This page describes the IRS page titled Topic no. 705, Installment Sales, as served on irs.gov on October 24, 2026. The IRS page shows that it was last reviewed or updated on 24 Sep 2026. The IRS can change a topic after we read it, and the IRS page controls. General information, not tax or legal advice.
Common mistakes
- Assuming the installment method is optional. The topic says you are “required to report gain on an installment sale under the installment method” unless you elect out
- Missing the deadline to elect out. The topic ties it to “the due date for filing your tax return (including extensions) for the year of the sale”
- Using the method for a sale at a loss. The topic says the rules “don’t apply to sales that result in a loss”
- Counting every payment as income. The topic says you “don’t include in income the part of the payment that’s a return of your basis”
- Ignoring interest. The topic says “You must also include in income any interest as ordinary income”
Related: IRS tax topics by number, Form 6252, Electing out of the installment method, Installment sale recapture in the year of sale, Form 4797, and Schedule D (Form 1040).
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Answer againSources
- IRS, Topic no. 705, Installment Sales (irs.gov): https://www.irs.gov/taxtopics/tc705
- IRS, Tax topics index (irs.gov): https://www.irs.gov/taxtopics
Read from the IRS pages linked above on October 24, 2026. General information, not tax or legal advice. The IRS topic page and the instructions for your own form control, and your own facts decide the outcome.