installment sale

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An installment sale, according to Publication 537 from the Internal Revenue Service (IRS), is a property sale where the seller receives “at least one payment after the tax year of the sale.” Installment sales are governed by section 453 of the Internal Revenue Code. Those who utilize an installment sale can report capital gains using the installment method, where part of the gain from the sale can be reported after receiving each payment. Not all sales qualify for use of the installment sale method, and even sales that do qualify can elect not to use the method. Sales that do not qualify as installment sales are dealer sales–also known as dealer dispositions–which are sales of personal property by a person who routinely sells that type of property. The regular sale of inventory–also called disposition of property–also does not meet the requirements of an installment sale. Further, any sale that results in a loss cannot utilize the installment method.

[Last updated in June of 2020 by the Wex Definitions Team]