An installment sale occurring in a prior year is filed on IRS Form 6252 providing all information on the sale in order to calculate the gross profit percentage to be used in later years.
In the years after the initial year of sale, then the gross profit % is used against the principal received during the year and the interest income received during the year is reported as income.
For additional information, please refer to the following link:
IRS Form 6252 and Instructions for Installment Sale
Any ordinary income recapture under section 1245 or 1250 (including sections 179 and 291) is fully taxable in the year of sale even if no payments were received.
To figure the recapture amount, complete Form 4797, Part III.
The ordinary income recapture is the amount on line 31 of Form 4797. Enter it on line 12 of Form 6252 and also on line 13 of Form 4797.
Don’t enter any gain for this property on line 32 of Form 4797.
If you used Form 4797 only to figure the recapture amount on line 12 of Form 6252, enter “N/A” on line 32 of Form 4797. Partnerships and S corporations and their partners and shareholders, see the Instructions for Form 4797.
