This is an Installment Sale.
When you sell
something for more than you paid for it, you report the income on your taxes
for the year in which the sale took place. Sometimes, though, the buyer spreads
the payments out over more than one year. In that case, it’s what the Internal
Revenue Service (IRS) refers to as an “installment sale.” Taxpayers use Form
6252 to report income from installment sales.
Form 6252 helps you
figure out how much of the money you received during a given tax year was a
return of capital, how much was a gain and how much was interest.
When you fill out
Form 6252, TurboTax will automatically carry this year's portion of the gain to the appropriate form. It will also carry the interest portion that you entered to Schedule
B and a Seller-Financed Interest Statement for Filing.
If the bank account that held any Installment
payments paid any interest on the money held in that account during the year,
that will be a separate 1099-Interest entry.
Just in case, here's how to enter Form 6252:
- Open (continue) your return
in TurboTax, if it's not already open.
- In the search box, search for
6252 and then click the "Jump to" link in the
search results.
- Follow the prompts. TurboTax
will create your Form 6252.
2017-01-02An installment sale, for
tax purposes, is the sale of property paid for by installment payments that
span more than 1 tax year.
The installment method of reporting taxes was enacted by Congress so that
taxpayers can pay taxes on the sale or other disposition of property over time,
when the payments from an installment sale are actually received. Without the
installment method, the taxpayer would have to report a large gain even though
most of the proceeds of the sale have yet to be received, because the gain
would otherwise have to be reported in the year of disposition. However, losses
cannot be deferred using the installment method. The applicable tax rate that
is applied to any gains depends on when the payment was received, not on the
sale date. Any depreciation claimed on the property must be recaptured and
reported in the sale year, which will be taxed at the rate that applies,
depending on the type of property. The recaptured depreciation is then added to
the basis of the property to calculate the capital gain, which will be taxed at
the capital gain rate.
