2020 Publication 537

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Publication 537ContentsInstallmentSalesFuture Developments . . . . . . . . . . . . 1Cat. No. 15067VDepartmentof theTreasuryInternalRevenueServiceFor use in preparing2020 ReturnsIntroduction . . . . . . . . . . . . . . . . . . 2What’s an Installment Sale? . . . . . . . . 2General Rules . . . . . . . . . . . . . . . . . 2Figuring Installment Sale Income . . . . 3Other Rules . . . . . . . . . . . . . .Electing Out of the InstallmentMethod . . . . . . . . . . . .Payments Received orConsidered Received . . . .Escrow Account . . . . . . . . .Depreciation Recapture IncomeSale to a Related Person . . . .Like-Kind Exchange . . . . . . .Contingent Payment Sale . . . .Single Sale of Several Assets . .Sale of a Business . . . . . . . .Unstated Interest and OriginalIssue Discount (OID) . . . . .Disposition of an InstallmentObligation . . . . . . . . . . .Repossession . . . . . . . . . .Interest on Deferred Tax . . . . .Special Rules for Capital GainsInvested in QOF . . . . . . . 4. 4.56668888. . . 10. . . 11. . . 12. . . 15. . . 16Reporting an Installment Sale . . . . . . 17How To Get Tax HelpIndex. . . . . . . . . . . 17. . . . . . . . . . . . . . . . . . . . . 20Future DevelopmentsFor the latest information about developmentsrelated to Pub. 537, such as legislation enactedafter it was published, go to IRS.gov/Pub537.RemindersNew reporting form for Qualified Opportunity Fund (QOF) investments. Form 8997,Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments, is a new formstarting in tax year 2019. Form 8997 is used toreport holdings, deferred gains, and dispositions of QOF investments. See the instructionsfor Form 8997 for more information.Like-kind exchanges. Beginning after December 31, 2017, section 1031 like-kind exchange treatment applies only to exchanges ofreal property held for use in a trade or businessor for investment, other than real property heldprimarily for sale. See Like-Kind Exchange,later.Get forms and other information faster and easier at: IRS.gov (English) IRS.gov/Spanish (Español) IRS.gov/Chinese (中文)Feb 24, 2021 IRS.gov/Korean (한국어) IRS.gov/Russian (Pусский) IRS.gov/Vietnamese (Tiếng Việt)Photographs of missing children. The IRS isa proud partner with the National Center forMissing & Exploited Children (NCMEC). Photographs of missing children selected by theCenter may appear in this publication on pagesthat would otherwise be blank. You can helpbring these children home by looking at the

photographs and calling 1-800-THE-LOST(1-800-843-5678) if you recognize a child.IntroductionNote. Section references within this publicationare to the Internal Revenue Code, and regulation references are to the Income Tax Regulations under the Code.Installment sale. An installment sale is a saleof property where you receive at least one payment after the tax year of the sale. If you realizea gain on an installment sale, you may be ableto report part of your gain when you receiveeach payment. This method of reporting gain iscalled the installment method. You can’t use theinstallment method to report a loss. You canchoose to report all of your gain in the year ofsale.This publication discusses the general rulesthat apply to using the installment method. Italso discusses more complex rules that applyonly when certain conditions exist or certaintypes of property are sold.If you sell your home or other nonbusinessproperty under an installment plan, you mayneed to read only the General Rules section below. If you sell business or rental property orhave a like-kind exchange or other complex situation, also see the appropriate discussion under Other Rules, later.Useful ItemsThe installment sales method can’t be usedfor the following.PublicationSale of inventory. The regular sale of inventory of personal property doesn’t qualify as aninstallment sale even if you receive a paymentafter the year of sale. See Sale of a Business,later.You may want to see:523 Selling Your Home523535 Business Expenses535541 Partnerships541544 Sales and Other Dispositions ofAssets544550 Investment Income and Expenses550551 Basis of Assets5514895 Tax Treatment of Property AcquiredFrom a Decedent Dying in 20104895Form (and Instructions)Schedule A (Form 1040) ItemizedDeductionsSchedule A (Form 1040)Schedule B (Form 1040) Interest andOrdinary DividendsSchedule B (Form 1040)Schedule D (Form 1040) Capital Gainsand LossesSchedule D (Form 1040)Schedule D (Form 1041) Capital Gainsand LossesSchedule D (Form 1041)Schedule D (Form 1065) Capital Gainsand LossesSchedule D (Form 1065)Schedule D (Form 1120) Capital Gainsand LossesSchedule D (Form 1120)Comments and suggestions. We welcomeyour comments about this publication and yoursuggestions for future editions.You can send us comments throughIRS.gov/FormComments. Or you can write toInternal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526,Washington, DC 20224.Although we can’t respond individually toeach comment received, we do appreciate yourfeedback and will consider your comments aswe revise our tax forms, instructions, and publications. Do not send tax questions, tax returns,or payments to the above address.Getting answers to your tax questions.If you have a tax question not answered by thispublication or How To Get Tax Help at the endof this publication, go to the IRS Interactive TaxAssistant page at IRS.gov/Help/ITA where youcan find topics using the search feature or byviewing the categories listed.Schedule D (Form 1120-S) CapitalGains and Losses and Built-in GainsSchedule D (Form 1120-S)1040 U.S. Individual Income Tax ReturnOrdering tax forms, instructions, andpublications. Go to IRS.gov/OrderForms toorder current forms, instructions, and publications; call 800-829-3676 to order prior-yearforms and instructions. The IRS will processyour order for forms and publications as soonas possible. Do not resubmit requests you’vealready sent us. You can get forms and publication faster online.Special rule. Dealers of timeshares andresidential lots can treat certain sales as installment sales and report them under the installment method if they elect to pay a special interest charge. For more information, see section453(l).Stock or securities. You can’t use the installment method to report gain from the sale ofstock or securities traded on an established securities market. You must report the entire gainon the sale in the year in which the trade datefalls.Installment obligation. The buyer's obligationto make future payments to you can be in theform of a deed of trust, note, land contract,mortgage, or other evidence of the buyer's debtto you.10401040-NR U.S. Nonresident Alien IncomeTax Return1040-NR1040-SR U.S. Income Tax Return forSeniors1040-SR1120 U.S. Corporation Income TaxReturn11201120-F U.S. Income Tax Return of aForeign Corporation1120-F4797 Sales of Business PropertyGeneral RulesIf a sale qualifies as an installment sale, thegain must be reported under the installmentmethod unless you elect out of using the installment method.See Electing Out of the Installment Method,later, for information on recognizing the entiregain in the year of sale.47976252 Installment Sale Income62528594 Asset Acquisition Statement UnderSection 106085948949 Sales and Other Dispositions ofCapital Assets8949Getting tax forms, instructions, and publications. Visit IRS.gov/FormsPubs to download current and prior-year forms, instructions,and publications.Dealer sales. Sales of personal property by aperson who regularly sells or otherwise disposes of the same type of personal property onthe installment plan aren’t installment sales.This rule also applies to real property held forsale to customers in the ordinary course of atrade or business. However, the rule doesn’tapply to an installment sale of property used orproduced in farming.8997 Initial and Annual Statement ofQualified Opportunity Fund (QOF)Investments8997What’s an InstallmentSale?An installment sale is a sale of property whereyou receive at least one payment after the taxyear of the sale.Fair market value (FMV). This is the price atwhich property would change hands between awilling buyer and a willing seller, neither beingunder any compulsion to buy or sell and bothhaving a reasonable knowledge of all the necessary facts.Sale at a loss. If your sale results in a loss,you can’t use the installment method. If the lossis on an installment sale of business or investment property, you can deduct it only in the taxyear of sale.Unstated interest. If your sale calls for payments in a later year and the sales contract provides for little or no interest, you may have tofigure unstated interest, even if you have a loss.See Unstated Interest and Original Issue Discount (OID), later.The rules for installment sales don’t apply ifyou elect not to use the installment method (seeElecting Out of the Installment Method, later) orthe transaction is one for which the installmentmethod may not apply.Page 2Publication 537 (2020)

Figuring Installment SaleIncomeYou can use the following discussions or Form6252 to help you determine gross profit, contract price, gross profit percentage, and installment sale income.Each payment on an installment sale usuallyconsists of the following three parts. Interest income. Return of your adjusted basis in the property. Gain on the sale.In each year you receive a payment, you mustinclude in income both the interest part and thepart that’s your gain on the sale. You don’t include in income the part that’s the return of yourbasis in the property. Basis is the amount ofyour investment in the property for installmentsale purposes.Interest IncomeYou must report interest as ordinary income. Interest is generally not included in a down payment. However, you may have to treat part ofeach later payment as interest, even if it’s notcalled interest in your agreement with the buyer.Interest provided in the agreement is called stated interest. If the agreement doesn’t providefor enough stated interest, there may be unstated interest or original issue discount (OID). SeeUnstated Interest and Original Issue Discount(OID), later.Adjusted Basis and InstallmentSale Income (Gain on Sale)After you’ve determined how much of each payment to treat as interest, you treat the rest ofeach payment as if it were made up of twoparts. A tax-free return of your adjusted basis inthe property. Your gain (referred to as installment saleincome on Form 6252).Figuring adjusted basis for installment salepurposes. You can use Worksheet A to figureyour adjusted basis in the property for installment sale purposes. When you’ve completedthe worksheet, you will also have determinedthe gross profit percentage necessary to figureyour installment sale income (gain) for this year.Selling price. The selling price is the totalcost of the property to the buyer and includesany of the following. Any money you are to receive. The FMV of any property you are to receive (FMV is discussed under GeneralRules, earlier). Any existing mortgage or other debt thebuyer pays, assumes, or takes (a note,mortgage, or any other liability, such as alien, accrued interest, or taxes you owe onthe property). Any of your selling expenses the buyerpays.Don’t include stated interest, unstated interest, any amount refigured or recharacterized asinterest, or OID.Adjusted basis for installment sale purposes. Your adjusted basis is the total of thefollowing three items. Adjusted basis. Selling expenses. Depreciation recapture.Adjusted basis. Basis is your investmentin the property for installment sale purposes.The way you figure basis depends on how youacquire the property. The basis of property youbuy is generally its cost. The basis of propertyyou inherit, receive as a gift, build yourself, orreceive in a tax-free exchange is figured differently.While you own property, various events maychange your original basis. Some events, suchas adding rooms or making permanent improvements, increase basis. Others, such asdeductible casualty losses or depreciation previously allowed or allowable, decrease basis.The result is adjusted basis.Worksheet A. Figuring Adjusted Basis andGross Profit Percentage1.2.3.4.5.6.7.8.Keep for Your RecordsEnter the selling price for the property . . . . . . . . . . . . . .Enter your adjusted basis for theproperty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Enter your selling expenses . . . . . . . . . . . . . .Enter any depreciation recapture . . . . . . . . .Add lines 2, 3, and 4.This is your adjusted basis forinstallment sale purposes . . . . . . . . . . . . . . . . . . . . . . . . .Subtract line 5 from line 1. If zero or less, enter -0-.This is your gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . .If the amount entered on line 6 is zero, stop here.You can’t use the installment method.Enter the contract price for the property . . . . . . . . . . . .Divide line 6 by line 7. This is your gross profitpercentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Publication 537 (2020)For more information on how to figure basisand adjusted basis, see Pub. 551. For more information regarding your basis in property youinherited from someone who died in 2010 andwhose executor filed Form 8939, Allocation ofIncrease in Basis for Property Acquired From aDecedent, see Pub. 4895, available atIRS.gov/Pub/IRS-Prior/p4895--2011.pdf.Selling expenses. Selling expenses relateto the sale of the property. They include commissions, attorney fees, and any other expenses paid on the sale. Selling expenses areadded to the basis of the sold property.Depreciation recapture. If the propertyyou sold was depreciable property, you mayneed to recapture part of the gain on the sale asordinary income. See Depreciation RecaptureIncome, later.Gross profit. Gross profit is the total gainyou report on the installment method.To figure your gross profit, subtract your adjusted basis for installment sale purposes fromthe selling price. If the property you sold wasyour home, subtract from the gross profit anygain you can exclude. See Sale of your home,later.Contract price. Contract price equals:1. The selling price, minus2. The mortgages, debts, and other liabilitiesassumed or taken by the buyer, plus3. The amount by which the mortgages,debts, and other liabilities assumed ortaken by the buyer exceed your adjustedbasis for installment sale purposes.Gross profit percentage. A certain percentage of each payment (after subtracting interest) is reported as installment sale income.This percentage is called the gross profit percentage and is figured by dividing your grossprofit from the sale by the contract price.The gross profit percentage generally remains the same for each payment you receive.However, see the Example under Selling PriceReduced, later, for a situation where the grossprofit percentage changes.Example. You sell property at a contractprice of 6,000 and your gross profit is 1,500.Your gross profit percentage is 25% ( 1,500 6,000). After subtracting interest, you report25% of each payment, including the down payment, as installment sale income from the salefor the tax year you receive the payment. Theremainder (balance) of each payment is thetax-free return of your adjusted basis.Amount to report as installment sale income. Multiply the payments you receive eachyear (less interest) by the gross profit percentage. The result is your installment sale incomefor the tax year. In certain circumstances, youmay be treated as having received a payment,even though you received nothing directly. A receipt of property or the assumption of a mortgage on the property sold may be treated as apayment. For a detailed discussion, see Payments Received or Considered Received, later.Page 3

Selling Price ReducedIf the selling price is reduced at a later date, thegross profit on the sale will also change. Youmust then refigure the gross profit percentagefor the remaining payments. Refigure yourgross profit using Worksheet B. You will spreadany remaining gain over future installments.Example. In 2018, you sold land with a basis of 40,000 for 100,000. Your gross profitwas 60,000. You received a 20,000 downpayment and the buyer's note for 80,000. Thenote provides for four annual payments of 20,000 each, plus 8% interest, beginning in2019. Your gross profit percentage is 60%. Youreported a gain of 12,000 on each payment received in 2018 and 2019.In 2020, you and the buyer agreed to reducethe purchase price to 85,000 and paymentsduring 2020, 2021, and 2022 are reduced to 15,000 for each year.The new gross profit percentage, 46.67%, isfigured on Example—Worksheet B.You will report a gain of 7,000 (46.67% of 15,000) on each of the 15,000 installmentsdue in 2020, 2021, and 2022.Example— New Gross ProfitWorksheet B. Percentage—SellingPrice Reduced1.2.3.4.5.6.7.8.9.Enter the reduced sellingprice for the property . . . . . . . .Enter your adjustedbasis for theproperty . . . . . . . . . . 40,000Enter your selling-0expenses . . . . . . . . .Enter any depreciation-0recapture . . . . . . . . .Add lines 2, 3, and 4 . . . . . . . .Subtract line 5 from line 1.This is your adjustedgross profit . . . . . . . . .Enter any installment saleincome reported inprior year(s) . . . . . . . . .Subtract line 7 fromline 6 . . . . . . . . . . . . .Future installments . . . .85,00040,00045,000.24,000.21,00045,00046.67%* Apply this percentage to all future payments todetermine how much of each of those payments isinstallment sale income.Reporting Installment SaleIncomeGenerally, you will use Form 6252 to report installment sale income from casual sales of realor personal property during the tax year. Youwill also have to report the installment sale income on Schedule D (Form 1040), Form 4797,or both. If the property was your main home,you may be able to exclude part or all of thegain.Page 41.2.3.4.5.6.7.8.9.10.Keep for Your RecordsEnter the reduced sellingprice for the property . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Enter your adjustedbasis for theproperty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Enter your sellingexpenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Enter any depreciationrecapture . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Add lines 2, 3, and 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Subtract line 5 from line 1.This is your adjustedgross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Enter any installment saleincome reported inprior year(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Subtract line 7 from line 6 . . . . . . . . . . . . . . . . . . . . . . . . .Future installments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Divide line 8 by line 9.This is your new grossprofit percentage* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .* Apply this percentage to all future payments to determine how much of each of those payments is installment sale income.For more information on how to report yourincome from an installment sale, see Reportingan Installment Sale, later.Other Rules.10. Divide line 8 by line 9.This is your new grossprofit percentage* . . . . . . . . . .Worksheet B. New Gross ProfitPercentage—Selling PriceReducedThe rules discussed in this part of the publication apply only in certain circumstances or tocertain types of property. The following topicsare discussed. Electing out of the installment method. Payments received or considered received. Escrow account. Depreciation recapture income. Sale to a related person. Like-kind exchange. Contingent payment sale. Single sale of several assets. Sale of a business. Unstated interest and OID. Disposition of an installment obligation. Repossession. Interest on deferred tax.Electing Out of theInstallment MethodIf you elect not to use the insta

Schedule B (Form 1040) Schedule D (Form 1040) Schedule D (Form 1041) Schedule D (Form 1065) Schedule D (Form 1120) Schedule D (Form 1120-S) 1040 1040-NR 1040-SR 1120 1120-F 4797 6252 8594 8949 8997 The installment sales method can’t be used for the following. Sale of inventory. The re

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1998 1999Evolution 2000 Evolution 2001 Evolution 2002 Evolution 2003 Evolution 2004 Evolution 98/99 99/00 00/01 01/02 02/03 03/04 Capacités d’accueil des académies 18 679 (2) 16 537 – 11,4% 14 927 – 9,7 % 13 591 – 8,9 % 15 537 14,3 % 16 858 8,5 % 15 137 – 10,3 %