Form 6252 Instructions 2026: Installment Sale Income Line by Line, Gross Profit Percentage, and Selling a Business on a Seller Note

Form 6252, Installment Sale Income, is the IRS form that spreads the gain on a sale over the years you are paid: each year you report only the gross profit percentage of the principal you received, so a sale with a 95% gross profit percentage puts $95 of gain on your return for every $100 of principal that arrives that year. An installment sale is any sale of property where at least one payment comes after the tax year of the sale (IRC §453), and the installment method applies automatically unless you elect out. Depreciation recapture is the exception: it is taxed in full in the year of sale even if you collect nothing. You file Form 6252 for the year of sale and every year after until the last payment. This guide maps the 2025 Form 6252 line by line, checked against the form and Pub. 537 on irs.gov in October 2026.

Key numbers for Form 6252 (2025 form, filed in 2026):

Item	Rule	Source
What counts as an installment sale	At least one payment received after the close of the tax year of the sale	IRC §453(b)(1)
Gain reported each year	Principal received that year × gross profit ÷ contract price	IRC §453(c); Form 6252, line 24
Depreciation recapture	Taxed in full in the year of sale, on Form 4797	IRC §453(i); Form 6252, line 12
Not eligible	Losses, inventory, dealer sales, publicly traded stock and securities	IRC §453(b)(2), §453(k)(2); Pub. 537
Related-party resale	Buyer's resale within 2 years accelerates your gain (Part III)	IRC §453(e)
Interest charge on deferred tax	Sales over $150,000 when your year-end installment notes exceed $5 million	IRC §453A
Electing out	Report the whole gain in the year of sale by the return due date, including extensions	IRC §453(d); Pub. 537
AFRs for October 2026 (annual)	Short-term 4.25%, mid-term 4.61%, long-term 5.22%	Rev. Rul. 2026-19

Form 6252 installment sale reference card 2026: gain reported equals principal received times gross profit percentage, depreciation recapture taxed in the year of sale, 2-year related-party resale rule, $5 million interest charge threshold on sales over $150,000, election out by the return due date, October 2026 AFRs of 4.25%, 4.61% and 5.22%

Save this cheat sheet — key numbers in one image.

What Is an Installment Sale?

An installment sale is a sale of property in which you receive at least one payment after the end of the tax year in which the sale happens. A buyer's note, a land contract, a seller-financed mortgage, or a deferred payment in a business-sale agreement all create one. Under IRC §453(a), gain from an installment sale is reported on the installment method by default; you do nothing to choose it.

Pub. 537 splits every payment you receive into three parts:

Interest, taxed as ordinary income in the year you receive it and never reported on Form 6252
Return of basis, tax-free
Gain, which Form 6252 calls installment sale income

The installment method decides how much of each principal payment is gain. Some sales cannot use it at all: a sale at a loss (the loss is deductible only in the year of sale), regular sales of inventory, dealer sales of property held for customers, and stock or securities traded on an established securities market, which are taxed in full in the year of the trade date.

How the Installment Method Works: The Gross Profit Percentage

The installment method taxes the same fraction of every principal payment. That fraction is the gross profit percentage: gross profit divided by contract price.

Gross profit is the selling price minus your adjusted basis, selling expenses, and any depreciation recapture already taxed in the year of sale. It is the total gain you will report over the life of the note.
Contract price is usually the selling price. It is smaller when the buyer assumes your existing mortgage, because that debt is not paid to you (the mortgage example below shows how).

Pub. 537's own example: a contract price of $6,000 and gross profit of $1,500 give a 25% gross profit percentage, so 25% of every payment, including the down payment, is gain and 75% is a tax-free return of basis. The percentage stays fixed for the life of the note unless the price is later reduced, in which case Worksheet B in Pub. 537 recomputes it for the remaining payments.

Split Your Gain Across the Years

Interactive

How much of the gain lands this year?

Enter the sale price, your adjusted basis plus selling expenses, and the principal you collect in the year of sale. Leave interest out; it is reported separately.

Selling price (excluding interest)

Adjusted basis + selling expenses

Form 6252 lines 10 + 11.

Principal received in the year of sale

Down payment plus note principal, no interest.

Depreciation recapture, if any

Form 4797, Part III; line 12 of Form 6252.

Installment sale income this year

$109,250

Gross profit percentage 0.9500: $115,000 of principal × 0.9500.

Total gross profit (line 16)$370,500

Deferred to later years$261,250

Form 6252 (2025), lines 13–24, and IRC §453(c). Assumes the buyer did not assume your mortgage (contract price = selling price). Gross profit percentage rounded to 4 decimals as on line 19.

Estimate the tax on this year's gain

The defaults are the goodwill side of Ruth's practice sale in the worked example below: a $390,000 price, $19,500 of selling expenses, and $115,000 of principal received in the year of sale give a 0.9500 gross profit percentage and $109,250 of gain this year, with $261,250 deferred to later years.

Form 6252 Lines 1 Through 4: The Questions at the Top

Form 6252 is one form per sale, and the four lines above Part I decide which parts you complete.

Line	What it asks	Why it matters
1	Description of the property, with a code: 1 timeshare or residential lot, 2 personal-use property sold by an individual, 3 farm property, 4 all other	Codes 1–3 are exempt from the pledge rule, and codes 2 and 3 from the §453A interest charge
2a / 2b	Date acquired and date sold	Holding period decides short- or long-term treatment on line 26
3	Sold to a related party?	"Yes" means Part III for the year of sale and the 2 years after, unless the final payment came this year
4	Can the total selling price be determined by year-end?	"No" makes it a contingent payment sale under Temporary Regulation §15a.453-1(c), and every later year must also answer "No"

Part I: Gross Profit and Contract Price, Lines 5 Through 18

Part I is completed every year of the agreement, but its numbers come from the year of sale and do not change.

Line	What goes there	Notes from the 2025 instructions
5	Selling price, including mortgages and other debts	Cash, the face amount of the buyer's note, and the fair market value of property received; never stated or unstated interest
6	Mortgages and debts the buyer assumed or took the property subject to	Only your existing debt; a new bank loan the buyer takes out does not go here
7	Line 5 minus line 6
8	Cost or other basis	Original cost plus improvements, minus casualty losses and certain credits
9	Depreciation allowed or allowable	Including Section 179 expense, adjusted per the instructions
10	Adjusted basis	Line 8 minus line 9
11	Commissions and other selling expenses	Broker fees, legal fees, advertising
12	Income recapture from Form 4797, Part III	§1245 and §1250 recapture (including §179 and §291), from Form 4797, line 31
13	Lines 10 + 11 + 12	Your basis for installment purposes
14	Line 5 minus line 13	Zero or less: stop, do not file Form 6252, report the sale on Form 4797, Form 8949, or Schedule D
15	Excluded gain on your main home	Section 121 exclusion; zero for anything else
16	Gross profit	Line 14 minus line 15
17	Line 6 minus line 13, if positive	Assumed debt in excess of your basis
18	Contract price	Line 7 plus line 17

Part II: Installment Sale Income, Lines 19 Through 26

Part II turns the year's payments into reportable gain and is the only part whose amounts change from year to year.

Line	What goes there	Notes from the 2025 instructions
19	Gross profit percentage, line 16 ÷ line 18	A decimal rounded to at least 4 places (25% = 0.2500); in later years, enter the year-of-sale percentage
20	Line 17 in the year of sale; zero in later years	Assumed debt above basis is treated as a payment in the year of sale
21	Payments received during the year	Principal only; includes money withheld at closing to pay off your debts or fees; the buyer's note itself is not a payment unless it is payable on demand or readily tradable
22	Lines 20 + 21
23	Payments received in prior years	Informational; it does not change this year's gain
24	Installment sale income: line 22 × line 19	Cannot be less than zero
25	Ordinary income under the recapture rules	§1252, §1254, or §1255 recapture only; §1245 and §1250 recapture already went on line 12
26	Line 24 minus line 25	To Form 4797, line 4 for business property held more than a year; to Schedule D, line 11 (or line 4 if short-term) for capital assets

The gain on line 26 keeps the character of the property sold. Long-term capital gain stays long-term in every year you collect, and the portion of a depreciated building's gain that is unrecaptured §1250 gain is tracked on the worksheet in the Schedule D instructions. The Form 4797 guide covers the §1231 side, and our Schedule D guide shows where line 11 lands.

Part III exists to stop families and affiliated companies from using a note to defer tax while the buyer cashes out. If you sell to a related party on the installment method and that party resells, gives away, or otherwise disposes of the property within 2 years (any time, for marketable securities) and before paying you in full, IRC §453(e) treats the amount the related party realized as paid to you at the time of the second sale.

Related parties for this rule include your spouse, children, grandchildren, parents, and siblings, and related corporations, S corporations, partnerships, estates, and trusts. Lines 27 and 28 identify the related party and ask about a resale; line 29 lists five exceptions (resale more than 2 years later, a stock redemption by the issuer, an involuntary conversion, a death, or no tax-avoidance purpose with an attached explanation); lines 30 through 37 compute the accelerated gain as the smaller of the resale price or your contract price, minus payments you have already received, times your gross profit percentage.

A second, harsher rule sits next to it: depreciable property sold to a related person, such as a controlled entity, generally cannot use the installment method at all under IRC §453(g), so all payments are treated as received in the year of sale.

Depreciation Recapture Is Taxed in the Year of Sale

Recapture is the part of the gain that equals depreciation you deducted, and IRC §453(i) makes it taxable in the year of sale no matter when the cash arrives. You compute it on Form 4797, Part III; the total on line 31 goes to Form 4797, line 13 and to Form 6252, line 12. Adding it to line 13 keeps it out of gross profit, so it is not taxed a second time as payments come in.

Fully depreciated equipment shows the effect. Equipment that cost $30,000, was written off with Section 179, and sells for $10,000 with $500 of allocated selling expenses has a $9,500 gain, all of it §1245 recapture. On Form 6252, line 13 equals $10,000 ($0 basis + $500 + $9,500), so line 14 is zero, and the instructions say not to file Form 6252 for it: the whole sale goes on Form 4797 in the year of sale, even if the buyer pays for it over five years.

Worked Example: Selling a Tax Practice on a Seller Note

Ruth, an enrolled agent running her tax practice as a sole proprietor, sells it on July 1, 2026 for $400,000. Buyer and seller agree on the Form 8594 allocation: $10,000 to office equipment (Class V) and $390,000 to goodwill (Class VII), which she built herself and has a $0 basis in. Her broker charges 5%, or $20,000, split by price: $500 to the equipment and $19,500 to the goodwill. The buyer pays $10,000 cash for the equipment and $90,000 down on the goodwill at closing, and signs a $300,000 note at 6% interest, with $5,000 of principal plus interest due monthly from August 1, 2026. Ruth keeps and collects her own receivables.

The equipment is the fully depreciated case above: $9,500 of §1245 recapture on Form 4797 for 2026, no Form 6252. The goodwill gets its own Form 6252:

Form 6252 line	Item	Amount
5 / 7	Selling price (no assumed debt)	$390,000
8–10	Basis of self-created goodwill	$0
11	Selling expenses	$19,500
13	Lines 10 + 11 + 12	$19,500
14 / 16	Gross profit	$370,500
18	Contract price	$390,000
19	Gross profit percentage, $370,500 ÷ $390,000	0.9500
21 / 22	2026 payments: $90,000 down + 5 × $5,000	$115,000
24 / 26	Installment sale income for 2026	$109,250

The 2026 gain is $109,250 of long-term gain, and $261,250 is deferred. The rest follows the note:

Year	Principal received	Gain reported (× 0.9500)
2026	$115,000	$109,250
2027–2030	$60,000 a year	$57,000 a year
2031 (final 7 payments)	$35,000	$33,250
Total	$390,000	$370,500

The interest on the note is ordinary income on Schedule B each year and never appears on Form 6252. The AFR test looks at the three months ending with the contract month and the sale month; assuming Ruth signed in July 2026, the month she closed, that is May through July 2026. Her 60 monthly payments give the note a weighted average maturity under three years, so the short-term AFR applies: 3.82%, 3.85%, and 4.00% (Rev. Ruls. 2026-9, 2026-11, 2026-12). A 6% rate clears all three, so no unstated interest is recharacterized. Spreading the gain this way can keep each year's income in a lower bracket than a single $370,500 year; to model the federal and state tax, our accounting practice sale tax calculator handles the Form 8594 classes and installment timing, and our selling your CPA firm hub collects the valuation guides and calculators for owners weighing buyers.

In conversations with practice owners planning an exit, the seller note is usually the first term they ask about and the last one they model for tax. The broader deal mechanics, from earnouts to retention clauses, are in our guide to selling an accounting practice.

When the Buyer Assumes Your Mortgage

A mortgage the buyer takes over is not cash to you, so it comes out of the contract price, until it exceeds your basis. Owen sells a parcel of land he held as an investment for $200,000. The buyer assumes his $80,000 mortgage, pays $20,000 down, and signs a note for $100,000. Owen's basis is $40,000 and his selling expenses are $10,000.

Form 6252 line	Item	Amount
5	Selling price	$200,000
6	Mortgage assumed by the buyer	$80,000
7	Line 5 − line 6	$120,000
13	Basis + selling expenses	$50,000
14 / 16	Gross profit	$150,000
17	Mortgage in excess of basis: $80,000 − $50,000	$30,000
18	Contract price: $120,000 + $30,000	$150,000
19	Gross profit percentage	1.0000
20 + 21 = 22	$30,000 deemed payment + $20,000 down payment	$50,000
24	Installment sale income for the year of sale	$50,000

Because the assumed mortgage wiped out his basis, every remaining dollar Owen collects is gain, and the $30,000 of debt above basis is taxed in the year of sale as if he had received it in cash.

Interest on the Note: Stated Interest and the AFR

An installment note needs adequate stated interest, or part of the principal is recharacterized as interest under IRC §483 or §1274. Pub. 537 sets the test rate as the lower of the lowest applicable federal rate (AFR) in the three months ending with the month of the binding written contract and the lowest AFR in the three months ending with the month of the sale. The term of the note, measured by its weighted average maturity, picks the rate: short-term for 3 years or less, mid-term for over 3 and up to 9 years, long-term beyond that. Rev. Rul. 2026-19 sets the October 2026 annual rates at 4.25% short-term, 4.61% mid-term, and 5.22% long-term; the IRS publishes new ones every month.

For seller financing under an inflation-adjusted limit ($7,296,700 for 2025 in Pub. 537), the test rate never has to exceed 9% compounded semiannually. A below-AFR note does not lower your tax: it reduces the stated selling price, shrinks the gain on Form 6252, and turns that slice into interest income taxed at ordinary rates.

Electing Out of the Installment Method

You can choose to report the entire gain in the year of sale under IRC §453(d), for example to use a capital loss carryforward or to recognize gain in a low-income year. The election is made by not filing Form 6252 and reporting the sale on Form 4797, Form 8949, or both, by the due date of the return including extensions. A taxpayer who filed on time without electing can still elect on an amended return within 6 months of the original due date, marked "Filed pursuant to section 301.9100-2." Revoking the election later needs IRS consent, which it will not give if tax avoidance is a purpose or the year a payment was received has closed.

The $5 Million Interest Charge and Other Special Rules

Interest on deferred tax (IRC §453A). If a sale's price exceeds $150,000 and your installment notes that arose during the year and are still outstanding at year-end total more than $5 million, you pay annual interest on the deferred tax: unrecognized gain × your top rate × the share of notes above $5 million × the IRS underpayment rate. It is figured outside Form 6252 (Pub. 537 has a worked example) and does not apply to farm property or to personal-use property sold by an individual.
Pledge rule. If you borrow against the installment note on a sale over $150,000, the loan proceeds are treated as a payment received on the note.
Disposing of the note (IRC §453B). Selling, gifting, or cancelling the note, or the buyer's default and your repossession, can trigger the deferred gain at once.
Selling price reduced later. If you and the buyer renegotiate the price, Worksheet B in Pub. 537 recomputes the gross profit percentage for the remaining payments.

When Form 6252 Does NOT Apply

Sales at a loss. Report the loss in the year of sale on Form 4797 or Form 8949; the installment method only defers gain.
Inventory and receivables in a business sale. The price allocated to inventory is taxed in the year of sale as ordinary business income, and a partner selling a partnership interest cannot defer the gain attributable to unrealized receivables and inventory.
Publicly traded stock and securities. The whole gain is taxed in the year of the trade date.
Dealer property. Real estate held for sale to customers and personal property a business sells regularly on installment terms are excluded (with a narrow interest-charge election for timeshares and residential lots).
The year after the last payment. Once the final payment arrives, you stop filing Form 6252; until then, you file it every year, even in a year with no payment.
Interest. Stated interest, unstated interest, and original issue discount never go on Form 6252.

Common Form 6252 Mistakes

Deferring depreciation recapture. Recapture belongs on line 12 and Form 4797 in the year of sale; spreading it over the payments understates the first year's income.
Using one Form 6252 for a whole business. A business sale is a sale of separate assets; each eligible asset gets its own computation, and equipment with no gain above recapture never reaches Form 6252.
Including interest on line 21. Only principal is a payment; interest goes to Schedule B.
Entering the buyer's new bank loan on line 6. Line 6 is only your debt that the buyer assumed or took the property subject to.
Recomputing the percentage every year. Line 19 in later years is the year-of-sale percentage unless the price changed.
Forgetting Part III after a sale to a relative. A resale within 2 years accelerates the remaining gain, and Part III is required for the year of sale and the 2 years after.

Keeping the Note's Payments Straight: How Jupid Helps

A seller note turns one sale into five or ten years of payments, each split between principal and interest, and Form 6252 needs the principal figure exactly. Jupid is an AI accountant in WhatsApp and iMessage that connects to your bank accounts and categorizes every transaction automatically at 95.9% accuracy, so incoming note payments, interest, and the rest of your income stay sorted month by month. Ask in chat "how much principal has the buyer paid this year?" and get the answer from your live ledger. Jupid does not prepare or file Form 6252. Try Jupid

Action Checklist

Agree on a written purchase price allocation with the buyer and file Form 8594 with your return for the year of sale.
Compute depreciation recapture for each depreciated asset on Form 4797, Part III.
Complete a separate Form 6252 for each asset with gain above recapture, and record the line 19 percentage.
Set the note's interest rate at or above the AFR for the contract month and the note's term.
Decide by the return due date, including extensions, whether to elect out of the installment method.
Each year until the final payment, total the principal received and file Form 6252 with that year's return.
If the buyer is related to you, track any resale for 2 years and complete Part III.

Use This with Your AI Agent

If you use Claude, ChatGPT, or another AI agent to report an installment sale, our open-source Form 6252 skill walks it through the steps people most often skip. It runs Form 4797 Part III first, so depreciation recapture is taxed in the year of sale, works out the contract price when the buyer assumes your mortgage, carries the year-of-sale gross profit percentage into every later year, tests the note's rate against the applicable federal rate for the right months, applies the two-year related-party resale rule, and tracks unrecaptured Section 1250 gain payment by payment. Review the draft before you file.

→ jupid-tax/jupid-skills on GitHub – forms/form-6252/SKILL.md

For Claude Code, clone the repo and run cp -r jupid-skills/forms/form-6252 ~/.claude/skills/. For the Anthropic SDK, load SKILL.md into the system prompt and the references/ files on demand. For browser-automation runtimes, filing.md covers the e-file or paper-file workflow.

Sources

This guide is for general educational purposes and does not constitute tax, legal, or accounting advice. It follows the 2025 Form 6252 and Pub. 537 as posted on irs.gov when last reviewed on October 6, 2026; a sale closing in 2026 is reported on the 2026 form, whose line numbers may change. The practice-sale and land examples are illustrative. Business sales, related-party transactions, and notes above $5 million call for a qualified tax professional.