Form 6252, Installment Sale Income, is how you report a sale of property where at least one payment arrives after the end of the tax year of the sale. Instead of paying tax on the whole gain at once, you report part of each payment as gain, using a gross profit percentage. You file it for the year of sale and every later year until the final payment, even in years when no payment comes in.
It's the form behind seller financing, whether you sold a rental, a piece of land or a small business on terms. Everything below comes from the 2026 Form 6252 and its instructions, as of October 2026.
When Form 6252 doesn't apply
- The sale produced a loss. Report it in full on Form 4797, Form 8949 or Schedule D instead.
- You sold stock or securities traded on an established market. All payments are treated as received in the year of sale.
- You regularly sell the same kind of personal property, or you hold real property for sale to customers, with limited exceptions for some dealers and farmers.
- You elect out of the installment method.
To elect out, you report the full selling price on a timely filed return on Form 4797, Form 8949 or Schedule D. If you filed on time without electing, you can still elect on an amended return filed within 6 months of the due date, excluding extensions, with Filed pursuant to section 301.9100-2 written at the top.
How the gain is spread
The form works out three numbers in the year of sale, then reuses the percentage every year after.
| Line | What it gives you |
|---|---|
| Line 16 | Gross profit: the selling price less your adjusted basis, selling expenses and any recapture |
| Line 18 | Contract price: line 7 (selling price less debts the buyer takes over) plus line 17 (any of that debt above your basis and costs) |
| Line 19 | Gross profit percentage: line 16 divided by line 18 |
| Line 24 | Installment sale income: the payments on line 22 multiplied by the gross profit percentage from line 19 |
One detail catches sellers out: depreciation recapture. Any ordinary income recapture from Form 4797, Part III, is taxed in the year of sale even if you haven't received a cent yet, so a seller-financed sale of depreciated property can create a tax bill before the cash arrives.
Interest is reported separately
Don't put interest on Form 6252. Stated interest, unstated interest, carrying charges and original issue discount go on the schedule where that income belongs, for the year it's includible in your income. The form only handles the principal part of each payment.
Related party rules
A related party includes your spouse, child, grandchild, parent or sibling, and related corporations, partnerships, estates and trusts. Two rules apply:
- If you sell to a related party on installments and they resell, give away or otherwise dispose of the property before paying you in full, you may be treated as receiving their sale proceeds at that point. You complete Part III for the year of sale and 2 years after, unless you received the final payment that year.
- If you sell depreciable property to a related person, you generally can't use the installment method at all, unless you can show the IRS that avoiding federal income tax wasn't a principal purpose.
Bigger sales: the pledge and interest rules
Two rules switch on for sales with a price over $150,000. Under the pledge rule, if you use the installment note as security for a loan, the loan proceeds are treated as a payment on the note. And you must pay interest on the deferred tax when the sales price is over $150,000 and your outstanding nondealer installment obligations from the year total more than $5 million at year end.
Both rules exclude personal-use property sold by an individual and farm property, so they mostly bite on large commercial and investment sales.
A worked example of the gross profit percentage
Say you sell land with an adjusted basis and selling costs that leave a gross profit equal to half the contract price. Your gross profit percentage on line 19 is then 0.5. In the year of sale you receive a down payment, so half of that payment counts as installment sale income and half is a tax-free return of your basis. In each later year you repeat the same calculation on the principal you receive, using the same decimal, until the note is paid off.
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Because the percentage is fixed in year one, an error in basis or selling expenses repeats every year of the contract. Keep the original closing statement, the depreciation history and a copy of the first year's form with your records for as long as the note runs. If the selling price changes later, for example through a renegotiation, the instructions tell you how to refigure the percentage for the remaining years.
What you need before you start
- A description of the property and the dates you acquired and sold it.
- The selling price, including any mortgages or debts the buyer took over, but without interest.
- Your cost or other basis and the depreciation allowed or allowable.
- Commissions and other selling expenses.
- Any ordinary income recapture worked out on Form 4797, Part III.
- For a main home, the excluded gain you're claiming.
The verdict
If you're carrying the buyer's note, Form 6252 lets your tax follow your cash, and you'll file it every year until the last payment, so keep the year-one percentage safe. Watch the recapture in year one, keep interest off the form, and think twice before selling depreciable property to a family business on terms. The gain each year ends up on Form 8949, Schedule D or Form 4797, depending on the asset.
Frequently asked questions
What is Form 6252?
It's the IRS form for reporting an installment sale under the installment method, where at least one payment is received after the year of sale.
Do I file Form 6252 every year?
Yes. You file it for the year of the disposition and all later years, even if no payment is received, until the final payment is received.
Can I use Form 6252 for a sale at a loss?
No. Report a sale that doesn't result in a gain on Form 4797, Form 8949 or Schedule D instead.
Where does interest on an installment sale go?
Interest, unstated interest and original issue discount aren't reported on Form 6252; report them on the form or schedule for that income.
Can I sell to a family member on installments?
Yes, but if they dispose of the property before paying in full, you may be treated as receiving their proceeds, and depreciable property sales to related persons usually can't use the method.
