Under IRC Section 453, gain on a sale paid over time is reported as the payments arrive, not all in the year you close. The short version: gain reported each year = principal received that year × your gross profit percentage (gross profit ÷ contract price). The rest is your basis back, tax free. Interest is ordinary income, and depreciation recapture is taxed in the year of sale. See it for your sale, three ways, in about a minute.
The 60-second estimate
One question at a time. The numbers update as you go, then we walk through what they mean.
Educational estimates on stated assumptions, not advice. Have your CPA run your numbers. How this site is paid.
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Every number
Every input and every output: cash at closing (the baseline), an installment sale (you carry the buyer's note) and a structured installment sale (a third party makes the payments). The 60-second estimate fills this in for you. Your numbers stay in your browser unless you enter your email to get your final number; then they are sent with it so your numbers can be emailed to you.
You carry the buyer's note, usually secured by the property.
The buyer pays a third-party assignment company at closing, which makes the payments to you.
The baseline: you are paid in full at closing.
Want to walk through these numbers with Hans? Pick a 15-minute time that works for you.
Book 15 minutes with HansThe gross profit ratio tells you how much gain is in each payment. The recapture split tells you the rate. Your suspended passive losses tell you what the gain actually costs. Two sales with the same ratio can owe very different tax. Leave these at zero if you have no rental losses.
Every input and assumption behind the numbers above, with its current value, where it comes from, and a link to the field that changes it. Values are read live from the tax engine.
Installment sale (your note) only. Buyers often refinance within a few years. When they do, the whole remaining balance arrives at once and so does the tax on it.
A big income year can raise Medicare premiums two years later, shrink the SALT deduction, make more Social Security taxable and cost ACA premium credits. These are estimated separately from the tax above: cash sale versus the structured installment sale at the yield rate. For Medicare IRMAA costs alone, see capital gains and IRMAA.
Method
Plain arithmetic on published rules. The same engine runs the 60-second estimate, the full calculator and the tool pages. Financial advisor? The advisor calculator adds assets under management and your fee revenue, cash sale vs structured.
Worked example
The default numbers in the calculator above, step by step, so you can check the math by hand. Figures are from the same engine, run for a seller in Texas (no state income tax), so every dollar below is federal.
Every figure is the calculator's own output for this example (Texas, married filing jointly, 2026 tables, later years on the newest published tables). The year one gain also counts the $620,000 paid at closing. Tax on the sale is federal income tax plus the 3.8% net investment income tax; the $100,000 of 1245 recapture is taxed in year one.
| Year | Note principal | Gain reported (Form 6252) | Interest | Tax on the sale | Tax on interest | Note balance, Dec 31 |
|---|---|---|---|---|---|---|
| 1 (2026) | $99,881 | $406,733 | $96,600 | $121,736 | $27,821 | $1,280,119 |
| 2 (2027) | $106,873 | $60,383 | $89,608 | $9,057 | $21,614 | $1,173,246 |
| 3 (2028) | $114,354 | $64,610 | $82,127 | $9,691 | $19,844 | $1,058,893 |
| 4 (2029) | $122,358 | $69,133 | $74,122 | $10,370 | $17,951 | $936,534 |
| 5 (2030) | $130,924 | $73,972 | $65,557 | $11,096 | $15,925 | $805,611 |
| 6 (2031) | $140,088 | $79,150 | $56,393 | $11,872 | $13,757 | $665,522 |
| 7 (2032) | $149,894 | $84,690 | $46,587 | $12,704 | $11,438 | $515,628 |
| 8 (2033) | $160,387 | $90,619 | $36,094 | $13,593 | $8,956 | $355,241 |
| 9 (2034) | $171,614 | $96,962 | $24,867 | $14,544 | $6,300 | $183,627 |
| 10 (2035) | $183,627 | $103,749 | $12,854 | $15,705 | $3,316 | $0 |
| Total | $1,380,000 | $1,130,000 | $584,810 | $230,369 | $146,921 |
Cash sale for comparison: $320,703 of tax on the sale, all in 2026. Gain reported adds to $1,130,000 because the other $100,000 of the $1,230,000 gain is the recapture taxed in 2026.
Form 6252 (Installment Sale Income) is filed for the year of sale and every year you receive a payment. Lines from the 2025 revision of the form; the 2026 form is not out yet.
| Line | What it asks | 2026 (year of sale) | 2027 |
|---|---|---|---|
| 5 | Selling price, including debts | $2,000,000 | Part I is filled in only for the year of sale |
| 6 | Debts the buyer assumed or took subject to | $0 (the loan was paid off at closing) | |
| 8 to 10 | Cost $1,000,000 less $350,000 depreciation = adjusted basis | $650,000 | |
| 11 | Commissions and other selling expenses | $120,000 | |
| 12 | Recapture from Form 4797, Part III | $100,000 | |
| 14, 16 | Gross profit (line 5 minus lines 10, 11, 12) | $1,130,000 | |
| 18 | Contract price | $2,000,000 | |
| 19 | Gross profit percentage (line 16 ÷ line 18) | 0.565 | 0.565 |
| 21 | Payments received this year, not interest | $719,881 | $106,873 |
| 23 | Payments received in prior years | $0 | $719,881 |
| 24 | Installment sale income (line 22 × line 19) | $406,733 | $60,383 |
| 26 | To Form 4797 (business or rental property) or Schedule D | $406,733 | $60,383 |
Line 25 (the ordinary-income part of line 24) is $0 here because the recapture was reported in full on line 12. Unrecaptured 1250 gain is not ordinary income; it goes through the Schedule D worksheet at up to 25%. Interest goes on Schedule B, not Form 6252. Selling to a related party? Part III (lines 27 to 37) is filed for the year of sale and the next two years. Want only these lines for your sale? Use the Form 6252 calculator or the gross profit percentage calculator.
Primary sources, checked October 14, 2026: 26 U.S.C. 453 (installment method, 453(e) related persons, 453(i) recapture); 26 U.S.C. 453A (interest charge over $5 million, pledge rule); Treas. Reg. 1.453-12 (order of the 25% layer); 26 U.S.C. 1411 (3.8% net investment income tax); IRS Publication 537, Installment Sales; IRS Form 6252; 2026 federal brackets from IRS Rev. Proc. 2025-32 (October 2025). Educational only, not tax advice. By Hans Goldstein, EA, Enrolled Agent, admitted to practice before the IRS.
Quick reference
What the installment sale calculator applies, part by part. Checked against the Internal Revenue Code, IRS Form 6252 (2025) and IRS rate tables on October 14, 2026.
| Piece of the sale | When it is taxed | 2026 federal rate or threshold |
|---|---|---|
| 1245 recapture (equipment, cost segregation, bonus depreciation) | All in the year of sale, paid or not (IRC 453(i)) | Ordinary rates, 10% to 37% |
| Unrecaptured 1250 gain (straight-line depreciation on buildings) | Spread, and comes out of the payments first (Treas. Reg. 1.453-12) | Up to 25% |
| Rest of the long-term gain | Spread: principal received × gross profit percentage | 0% to $98,900 MFJ ($49,450 single); 15% to $613,700 MFJ ($545,500 single); 20% above (Rev. Proc. 2025-32) |
| Interest on the note | Each year as received, Schedule B | Ordinary rates |
| Net investment income tax | Each year on gain plus interest above the threshold | 3.8% over $250,000 MFJ, $200,000 single (IRC 1411, not indexed) |
| 453A interest charge | Each year a sale over $150,000 leaves more than $5,000,000 of that year's notes outstanding at Dec 31 | Underpayment rate for the month the tax year ends: 7% for Oct to Dec 2026 (IRS) |
| Pledging the note for a loan | Loan proceeds count as a payment (IRC 453A(d)) | Same sales over $150,000 |
| Related buyer resells within 2 years | Their sale price counts as paid to you then (IRC 453(e)) | Form 6252, Part III |
| Depreciable property sold to a controlled entity | All payments treated as received in the year of sale (IRC 453(g)) | No installment method |
| Publicly traded stock or securities, inventory, dealer sales | Not eligible (IRC 453(b)(2), 453(k)) | Taxed in the year of sale |
| Electing out (IRC 453(d)) | Report the whole gain in the year of sale on a timely filed return (with extensions); late election only on an amended return within 6 months of the due date | Form 4797, 8949 or Schedule D, no Form 6252 |
Sources: 26 U.S.C. 453; 26 U.S.C. 453A; IRS Form 6252 and instructions (2025); IRS Publication 537 (2025); Rev. Proc. 2025-32; IRS quarterly interest rates, Q4 2026. All checked October 14, 2026.
Hans Goldstein, who publishes this calculator as Hans Goldstein: Tax & Exit Planning, reviews structured installment sales for owners selling appreciated real estate or a business, working alongside their CPA and attorney. The structure has to be in place before closing. Email hans@goldsteinco.net or call or text 213-414-2808. Hans Goldstein is a licensed insurance agent (CA Insurance License #4273294) and may discuss insurance products, including annuities; insurance is offered through Goldstein & Co. LLC dba Goldstein Insurance Services.
Find the gross profit (selling price minus adjusted basis, selling expenses and any recapture already reported) and divide it by the contract price (usually the selling price, less any debt the buyer assumes that does not exceed your basis). That is the gross profit percentage. Each year, multiply the principal you received by it: that is your installment sale income on Form 6252, line 24. In the $2,000,000 example above, 56.5% of $719,881 received in 2026 is $406,733.
Yes. File Form 6252 for the year of sale and for every later year in which you receive a payment on the note. Part I (gross profit and contract price) is completed only for the year of sale; Part II is completed every year. If the buyer is a related party, Part III is also filed for the year of sale and the two years after it.
Yes. To elect out under IRC 453(d), report the whole gain in the year of sale on Form 4797, Form 8949 or Schedule D on a return filed on time, including extensions, and do not file Form 6252. If you filed on time without electing, you can still elect on an amended return filed within 6 months of the original due date, excluding extensions. Electing out can make sense when capital losses or an expiring loss would absorb the gain.
Sales of inventory, dealer sales of real or personal property held for sale to customers, and sales of stock or securities traded on an established market cannot use it (IRC 453(b)(2) and 453(k)). Depreciable property sold to a controlled entity is generally treated as paid in full in the year of sale (IRC 453(g)). A sale at a loss is not reported on Form 6252. The ordinary-income recapture part of any sale is taxed in the year of sale (IRC 453(i)).
The gross profit ratio is your gross profit (selling price minus adjusted basis and selling expenses) divided by the contract price. Each principal payment you receive is multiplied by that ratio to find the gain you report that year; the rest is a tax-free return of basis. Interest is taxed separately as ordinary income. The contract price is usually the selling price, reduced by any mortgage the buyer assumes, but only down to your basis.
Under Treasury Regulation 1.453-12, unrecaptured Section 1250 gain (the part of your gain that comes from straight-line depreciation on a building) is taken into account first, before the rest of the long-term capital gain. That layer is taxed at a maximum 25% federal rate, so the early payments carry more tax than the later ones.
Section 453(i) says depreciation recapture under Sections 1245 and 1250 (the ordinary-income kind) is recognized in the year of sale, even if you receive no payment that year. For real estate this mostly means cost segregation and bonus depreciation on personal property and land improvements. The recaptured amount is added to basis when figuring the gross profit ratio, so it is not taxed twice.
Yes, when the loan is paid off at closing out of the buyer's money, the payoff is a payment to you in the year of sale, so gain is recognized on it right away. If instead the buyer assumes your mortgage or takes the property subject to it, the debt reduces the contract price and is treated as a payment only to the extent it exceeds your basis. This calculator assumes the loan is paid off at closing.
If you sell property for more than $150,000 on the installment method and the face amount of all such installment obligations that arose during the year and are still outstanding at year end is more than $5 million, Section 453A adds an annual interest charge on part of the deferred tax. The rate is the IRS underpayment rate. Farm property and personal-use property are excluded. The calculator estimates this charge when it applies.
Carefully. Under Section 453(e), if you sell to a related person (for example a child, parent, sibling or a controlled entity) and that person resells the property within two years, the amount they receive can be treated as received by you, accelerating your gain. Separately, Section 453(g) generally denies installment treatment for depreciable property sold to certain related parties. Get tax advice before any related-party sale.
Under Section 453A(d), if you pledge an installment obligation from a sale over $150,000 as security for a loan, the net loan proceeds are treated as a payment on the note. You report gain on that amount as if the buyer had paid it. Selling, giving away or otherwise disposing of the note can also trigger the remaining gain under Section 453B.
An early payoff is a payment like any other, so all of the gain not yet reported is taxed in the year you receive it, and the interest you expected stops. With a note you carry, this is common when a buyer refinances. The "What if?" panel in the calculator shows the size of that one-year tax spike. Some sellers negotiate a prepayment limit or penalty in the note for this reason.
If a note charges less than the applicable federal rate (AFR) the IRS publishes each month, Sections 483 and 1274 recharacterize part of the principal as interest. That turns capital gain into ordinary interest income for you. Some smaller installment notes qualify for a 9% cap under Section 1274A, and sales of land between family members of up to $500,000 a year have a 6% cap under Section 483(e). Set the rate at or above the AFR for the month of sale unless your advisers say otherwise.
Most states that tax income follow the federal installment method and tax the gain as it is received. Moving does not necessarily end the tax: a state generally keeps the right to tax gain from real property located there, even when payments arrive after you move. California, for example, taxes California real property gain received by nonresidents and requires withholding on the sale (Form 593), including on installment payments. A few states tax capital gain differently from ordinary income. Check your state's rules with your CPA.
Go deeper
For a plain-English walkthrough of Section 453, with worked examples of when installment reporting helps and when it does not, read the free book.
Hans Goldstein is an Enrolled Agent, admitted to practice before the Internal Revenue Service. Not affiliated with or endorsed by the IRS. General education, not tax or legal advice for your situation.