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LSDefine
Simple English definitions for legal terms
installment sale
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A quick definition of installment sale:
An installment sale is when someone sells something and receives at least one payment after the year of the sale. This type of sale is governed by a law called section 453. People who use an installment sale can report how much money they made in parts, after they receive each payment. But not all sales can be installment sales, and some people choose not to use this method. If someone sells things regularly, they can't use an installment sale. And if someone loses money on a sale, they can't use this method either.
A more thorough explanation:
An installment sale is a type of property sale where the seller receives at least one payment after the tax year of the sale. This means that the buyer pays for the property over time, rather than all at once. The IRS has specific rules for how installment sales are taxed.
For example, if someone sells a piece of property for $100,000 and the buyer pays $20,000 per year for five years, this would be an installment sale. The seller would report part of the gain from the sale each year, based on how much they received in payments.
It's important to note that not all sales qualify for the installment sale method. For example, if someone regularly sells a certain type of property, those sales would not qualify. Additionally, if a sale results in a loss, the installment method cannot be used.