Form 6252 is used for installment sales. An installment sale lets investors sell their property and receive payments over time. The advantage is that the seller is only taxed on what they receive. This allows the seller to pay a lower upfront tax bill and spread the rest out over time. Let’s go over what’s needed to fill out Form 6252.
Filing Out Form 6252
Note that Form 6252 doesn’t need to be filled out if the property is sold for a loss.
Form 6252 has three parts:
- Part I: Gross Profit and Contract Price
- Part II: Installment Sale Income
- Part III: Related Party Installment Sale Income
The entire form is only one page, not including instructions. Some entries on Form 6252 will flow into Schedule D and Form 1040.
If more than one property was involved in an installment sale, Form 6252 must be filled out for each property.
Before reaching Part I, information about the property involved must be filled out. This includes the description, date purchased, date sold, and if the property was sold to a related party. If the property was sold to a related party, Part III must be filled out. Otherwise, that section can be left blank.
If Part III is required, rather than jumping to it, complete Part I since it is required and contains information needed for Part III.
Part I contains information about profit and the contract price. Lines 6-13 determine the property’s basis. Once the basis is known, it is subtracted from line 5 (selling price) to get the profit.
Part II details the installment sale arrangement. You’ll enter in the gross profit percentage (gross profit divided by contract price), and any payments received during the year of the sale or before.
The installment sale income is also entered in Part II. It is the gross profit percentage x payments received.
Part III isn’t required if the final payment was received this year. If you fill out Part III, this section will ask who the related party is, the price the property was sold for, and any payments received. There are additional questions to answer if the related party resold or disposed of the property (“second disposition”) during the current tax year.
An installment sale is an involved process. Working with a real estate and tax specialist can help ensure the installment sale is executed correctly and that Form 6252 is also filled out correctly.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
