About the Installment Sale Calculator
This installment sale calculator shows how the gain on a seller-financed sale of property — real estate, a business asset or land — is spread over the years you receive payments. Under the installment method you report only the gain portion of each payment of principal, so tax follows the cash instead of being due all in the year of sale. Enter the selling price, your adjusted basis, selling expenses, any depreciation recapture, any mortgage the buyer assumes, the down payment and the note terms.
It follows Worksheet A of IRS Publication 537 and Form 6252: the gross profit is the selling price minus your installment sale basis (adjusted basis + selling expenses + depreciation recapture), the contract price is the selling price minus any mortgage the buyer assumes (plus any mortgage above your basis, which counts as a payment in the year of sale), and the gross profit percentage is gross profit ÷ contract price. That percentage of each principal payment is taxable gain; interest is ordinary income.
The calculator assumes the buyer pays the remaining balance in equal annual payments of principal and interest starting one year after the sale. Depreciation recapture is taxed in full in the year of sale and is not deferred. The installment method is not available for sales of inventory, dealer property or publicly traded stock, and notes over $5 million can trigger an interest charge on the deferred tax.
With the default inputs, the gross profit percentage is 54%. Change any value above to recalculate instantly.
How to use the installment sale calculator
- 1Enter the selling price, your adjusted basis and selling expenses.
- 2Add any depreciation recapture and any mortgage the buyer takes over.
- 3Enter the down payment, note interest rate and number of annual payments.
- 4Enter the tax rate you expect on the gain.
- 5Review the gross profit percentage and the year-by-year schedule.
Formula and method
Your installment sale basis is adjusted basis plus selling expenses plus depreciation recapture. Gross profit is the selling price minus that basis — the total gain you will report over the life of the sale. The contract price is the selling price minus any mortgage the buyer assumes; if the mortgage is larger than your installment sale basis, the excess is treated as a payment in the year of sale and added back to the contract price, which makes the gross profit percentage 100%.
Each year, multiply principal received (the down payment, any excess mortgage and the principal part of each installment) by the gross profit percentage to get the taxable gain for Form 6252. The remaining balance is paid in equal annual installments: payment = Note × r ÷ (1 − (1 + r)^−n). Interest income is taxed separately as ordinary income and is not part of the installment gain.
- GP%
- Gross profit percentage
- Contract price
- Selling price − assumed mortgage + mortgage in excess of basis
- r, n
- Annual interest rate on the note and number of annual payments
Worked examples
Land sold for $500,000 with $100,000 down
Installment sale basis is $200,000 + $30,000 = $230,000, so gross profit is $270,000 and the gross profit percentage is $270,000 ÷ $500,000 = 54%. The $100,000 down payment brings $54,000 of gain in the year of sale. The $400,000 note at 6% over 10 years pays $54,347 a year; in year 1, $30,347 is principal, of which $16,387 is gain.
Buyer assumes a mortgage (Pub. 537 example)
The buyer assumes a $15,000 mortgage, which is less than the $20,000 installment sale basis, so the contract price is $25,000 − $15,000 = $10,000. Gross profit of $5,000 gives a 50% gross profit percentage, so half of the $2,000 down payment ($1,000) is gain in the year of sale.
Mortgage larger than basis
The $6,000 assumed mortgage exceeds the $5,000 installment sale basis by $1,000. That excess is a deemed payment in the year of sale and is added to the contract price, making it $4,000 — equal to the gross profit — so 100% of every payment, including the $1,000, is gain.
Frequently asked questions
How do you calculate the gross profit percentage?+
Divide gross profit (selling price minus adjusted basis, selling expenses and depreciation recapture) by the contract price (selling price minus any mortgage the buyer assumes, plus any mortgage in excess of basis). The percentage normally stays the same for every payment.
What is an installment sale?+
An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. The installment method lets you report the gain proportionally as you collect principal, instead of all in the year of sale.
Is depreciation recapture deferred in an installment sale?+
No. Depreciation recapture under sections 1245 and 1250 is reported in full as ordinary income in the year of sale, even if you receive little cash. It is added to your basis so it isn’t taxed again as gain.
How is the interest on an installment note taxed?+
Interest you receive is ordinary income, reported separately from the installment gain. If the note charges less than the applicable federal rate, the IRS may recharacterize part of the principal as interest (imputed interest).
Can I elect out of the installment method?+
Yes. You can elect to report the entire gain in the year of sale by including it in full on your return by the due date, including extensions. This can make sense if you have losses to offset or expect higher rates later.
What sales cannot use the installment method?+
Sales at a loss, sales of inventory or dealer property, and sales of stock or securities traded on an established market cannot use the installment method. Special rules apply to sales to related parties who resell within two years.
Tax results are estimates based on published rules and simplified assumptions. They are not tax advice — check official guidance or a tax professional for your situation.