What is an installment sale?

An installment sale happens when all of the following are true:

• The sale results in a gain and not all of the gain can be excluded.
• You agree to receive at least one payment after the tax year of the sale.
• You choose to report the sale as an installment sale

For example, you sell your main home and agree to carry a note and let the buyer pay you over more than one tax year.

When you have an installment sale, you can either report and be taxed on the full gain in the year of sale, or elect to use the installment sale method and only be taxed on the money you receive during any given tax year.

For example, this could be beneficial if you can't exclude all or part of the gain on your home so that you don't have to pay all the tax on that gain at once.