In this educational video, the speaker defines an installment sale as a property disposition where at least one payment is received outside the tax year of the sale. He explains the installment method, which allocates each payment into three components: interest, return of basis, and gain. The speaker outlines which property types are eligible for installment sales—generally any property except inventory, dealer property, and marketable securities. A key point highlighted is the treatment of depreciation recapture: it must be reported in the year of sale and cannot be spread over the installment period. The video notes that while the installment method is usually advantageous for tax timing, taxpayers may elect to report the entire gain in the year of sale. The speaker advises consulting a tax advisor and offers to answer questions.
Chapters
This week we're going to talk about something called an installment sale. An installment sale is when you dispose of property and at least one of the payments you receive falls outside the tax year in which the disposition occurred. And when you have an installment sale, most of the time you're going to be using what's called the installment method to report that for taxes. And what the installment method does is basically it takes the payments you received and it breaks them into 3 buckets. One is going to be Interest. One's going to be your report of your basis or return of basis, and the other is going to be gain. Now, what type of property is eligible for an installment sale? Well, pretty much anything except things like inventory, dealer property, and marketable securities. Okay. Now, something that's important to remember when you're considering an installment sale is that a lot of times these— this property that you're selling this way is going to be property that was depreciated. And remember, we have this thing called depreciation recapture, okay? And in an installment sale, under the installment method, you— that depreciation recapture doesn't get spread over the installment period. It's reported in the year of the sale. So if you're going to consider— if this is something that you're thinking about doing, make sure that you throw that into the calculation to make sure you're not surprised come tax time that you have to recapture the depreciation. It wasn't part of something that was spread over that period of time. So Again, installment sale could be a good thing to do, and the installment method is generally going to be the way you want to go to report that. But again, you don't have to use the installment method. You can report the whole sale in the year it happened if you want, but the installment method generally will help you on taxes. But you have to make sure you account for that piece of depreciation recapture if it applies to you. So again, these are educational. There's a lot of pieces, a lot of moving parts to this one. So please talk to your tax advisor before you go ahead and do anything like this. But if you have questions, hit me up. I'm here. Talk soon.
