Installment Sale Calculator
Selling property and letting the buyer pay over time? Spread the gain over the years you're paid, the way Form 6252 does — with recapture up front, the interest, and a year-by-year schedule.
Ben / Reviewed Sep 27, 2026 / v2.0.0
Results
Showing the numbers you calculatedHeads up
- The $20,000.00 of depreciation recapture is taxed in 2026 no matter when you're paid — plan for that tax bill.
- Gross profit percentage
- 37.50%
- $75,000.00 gross profit ÷ $200,000.00 contract price
- Taxable in the year of sale
- $35,000.00
- $15,000.00 installment gain + $20,000.00 recapture (2026)
- Gain deferred to later years
- $60,000.00
- Taxed as the payments come in
- Total gain over the note
- $95,000.00
- Recapture + gross profit
- Note payment
- $37,983.42
- On a $160,000.00 note
- Interest you'll receive
- $29,917.12
- Ordinary income, as it's paid
What you report each year
Swipe the table sideways to see all 7 columns.
| Year | Principal received | Installment gain | Interest | Recapture | Total taxable | Note balance at year-end |
|---|---|---|---|---|---|---|
| 2026 | $40,000.00 | $15,000.00 | $0.00 | $20,000.00 | $35,000.00 | $160,000.00 |
| 2027 | $28,383.42 | $10,643.78 | $9,600.00 | $0.00 | $20,243.78 | $131,616.58 |
| 2028 | $30,086.43 | $11,282.41 | $7,896.99 | $0.00 | $19,179.40 | $101,530.15 |
| 2029 | $31,891.61 | $11,959.36 | $6,091.81 | $0.00 | $18,051.17 | $69,638.54 |
| 2030 | $33,805.11 | $12,676.91 | $4,178.31 | $0.00 | $16,855.22 | $35,833.43 |
| 2031 | $35,833.43 | $13,437.54 | $2,150.01 | $0.00 | $15,587.55 | $0.00 |
Form 6252 (year of sale)
| Line | What it is | Amount |
|---|---|---|
| 5 | Selling price, including debt the buyer took over | $200,000.00 |
| 6 | Debt the buyer took over | $0.00 |
| 7 | Line 5 − line 6 | $200,000.00 |
| 10 | Adjusted basis | $100,000.00 |
| 11 | Selling expenses | $5,000.00 |
| 12 | Depreciation recapture (taxed this year) | $20,000.00 |
| 13 | Lines 10 + 11 + 12 | $125,000.00 |
| 14 | Line 5 − line 13 | $75,000.00 |
| 16 | Gross profit | $75,000.00 |
| 17 | Debt over basis (treated as a payment) | $0.00 |
| 18 | Contract price: line 7 + line 17 | $200,000.00 |
| 20 | Line 17 (year of sale) | $0.00 |
| 21 | Payments received in 2026 | $40,000.00 |
| 22 | Line 20 + line 21 | $40,000.00 |
| 24 | Installment sale income: line 22 × gross profit % | $15,000.00 |
The buyer's note
Swipe the table sideways to see all 6 columns.
| # | Date | Payment | Interest | Principal | Balance |
|---|---|---|---|---|---|
| 1 | 07/01/2027 | $37,983.42 | $9,600.00 | $28,383.42 | $131,616.58 |
| 2 | 07/01/2028 | $37,983.42 | $7,896.99 | $30,086.43 | $101,530.15 |
| 3 | 07/01/2029 | $37,983.42 | $6,091.81 | $31,891.61 | $69,638.54 |
| 4 | 07/01/2030 | $37,983.42 | $4,178.31 | $33,805.11 | $35,833.43 |
| 5 | 07/01/2031 | $37,983.44 | $2,150.01 | $35,833.43 | $0.00 |
What this does
When you sell property and the buyer pays you over several years, you don't have to pay tax on the whole gain in year one. The installment method lets you pay tax on each piece of the gain as the money actually comes in.
This works through Form 6252: the gross profit, the percentage of every payment that's gain, what's taxable each year (including the interest on the note), and the part that can't be deferred — depreciation recapture.
How the math works
First, the gross profit and the contract price:
gross profit = selling price − (adjusted basis + selling expenses + depreciation recapture) contract price = selling price − debt the buyer takes over (plus any of that debt above your basis)
Recapture gets added to basis because it's all taxed in the year of sale — adding it keeps it from being taxed twice.
gross profit % = gross profit ÷ contract price gain each year = principal received that year × gross profit %
Interest on the note is separate: it's ordinary income in the year you receive it.
The installment method is automatic for a qualifying sale with a gain — you'd have to elect out to report it all at once. It can't be used for a loss, inventory, or publicly traded stock.
Check my math: a worked example
Selling for $200,000 with $100,000 of adjusted basis, $5,000 of selling expenses, and $20,000 of depreciation recapture. The buyer puts $40,000 down and pays the rest over 5 years at 6%.
- Gross profit: $200,000.00 − ($100,000.00 + $5,000.00 + $20,000.00) = $75,000.00.
- Gross profit %: $75,000.00 ÷ $200,000.00 = 37.50%.
- 2026: $40,000.00 received × 37.50% = $15,000.00 of gain, plus the $20,000.00 of recapture — $35,000.00 taxable.
- 2027: $28,383.42 of principal → $10,643.78 of gain, plus $9,600.00 of interest.
- 2028: $30,086.43 of principal → $11,282.41 of gain, plus $7,896.99 of interest.
- Over the whole note: $95,000.00 of gain (recapture + gross profit) and $29,917.12 of interest.
These numbers come straight from the calculator using its example inputs — if the math ever changes, this example changes with it.
Mistakes I see a lot
- Leaving recapture out of the year of sale. It's taxed up front, even if you haven't been paid yet.
- Figuring gross profit without adding recapture to basis. That taxes the recapture twice.
- Treating whole payments as gain. Only principal × the gross profit % is gain; the interest is separate ordinary income.
- Charging a below-market interest rate. The IRS will recharacterize part of the principal as interest.
- Selling to a relative who resells within two years. That can make you recognize the rest of the gain early.
Questions people ask
- Is an installment sale a good idea?
- It spreads the tax over several years, which can keep you in lower brackets. The trade-off is the risk that the buyer stops paying — so it's worth the same care as any loan you'd make.
- What interest rate should the note carry?
- At least the applicable federal rate (AFR) for the note's term, which the IRS publishes monthly. Below that, part of each payment is treated as interest instead of principal.
- What happens if the buyer pays it off early?
- The remaining gain is taxed in the year you're paid. Nothing is lost — it just comes sooner.
- Is the installment gain a capital gain?
- It keeps the character of the property: capital gain for investment property, Section 1231 gain for business property held more than a year (after recapture). That character carries into every year you report it.
Assumptions and limits
- Form 6252 and IRC §453. Gross profit = selling price − (adjusted basis + selling expenses + depreciation recapture). Recapture is added because it's all taxed in the year of sale (Form 4797, Part III).
- Contract price = selling price − debt the buyer takes over, plus any of that debt above your basis, expenses, and recapture — which also counts as a payment in the year of sale.
- Each year's installment gain is its principal received × the gross profit percentage, figured on running totals so the gains add up exactly to the gross profit.
- The buyer's note is amortized with level payments at the stated rate. Interest is ordinary income, separate from the gain.
- The character of the installment gain (capital or Section 1231) follows the property, and it keeps that character in every year.
- Not modeled: imputed interest when the rate is below the applicable federal rate, dealer sales and inventory (which can't use the installment method), related-party resales, pledging the note, the §453A interest charge on large notes, and electing out.
Disclaimer: Educational and planning use only. Results depend on what you enter and may not match your lender, your tax return, or professional accounting treatment. Informational content + opinions only — not tax/legal advice. Tax rules change and have exceptions this calculator doesn't cover — confirm current rules and your specific facts before relying on the result.