The selling price includes the money and the fair market value of property you received for the sale of the property, any of your selling expenses paid by the buyer, and existing debt encumbering the property that the buyer pays, assumes, or takes subject to. Your total gain on an installment sale is generally the amount by which the selling price of the property you sold exceeds your adjusted basis in that property. For additional situations and information about when you can't report payments on the installment method, see Publication 537, Installment Sales. You must report any portion of the gain from the sale of depreciable assets that's ordinary income under the depreciation recapture rules in the year of the sale. You can't use the installment method to report gain from the sale of inventory or stocks and securities traded on an established securities market. Installment method rules don't apply to sales that result in a loss. Situations Where the Installment Method Isn't Permitted You may elect out by reporting all the gain as income in the year of the sale in accordance with your method of accounting on Form 4797, Sales of Business Property, or on Schedule D (Form 1040), Capital Gains and Losses and Form 8949, Sales and Other Dispositions of Capital Assets. You're required to report gain on an installment sale under the installment method unless you "elect out" on or before the due date for filing your tax return (including extensions) for the year of the sale. An installment sale is a sale of property where you'll receive at least one payment after the tax year in which the sale occurs.
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