installment sale

Installment sale, as defined by Internal Revenue Code § 453 and IRS Publication 537, is a sale of property in which the seller receives at least one payment after the close of the tax year in which the sale occurs. This arrangement allows the seller to report and pay tax on the gain proportionally as payments are received, rather than recognizing the entire gain in the year of sale. The installment method may be used to defer recognition of income from qualifying sales, allocating each payment between return of basis, gain, and interest. However, not all transactions qualify. The installment method cannot be used for:

• Sales of property held for resale by a dealer, such as inventory or property regularly sold in the ordinary course of business.
• Inventory sales, which must be reported in full in the year of sale.
• Transactions resulting in a loss, as only gain may be reported under the installment method.

Taxpayers eligible for the installment method may also opt out by reporting the entire gain in the year of sale.

[Last reviewed in October of 2025 by the Wex Definitions Team]

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