J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Installment Sales

If you sell property and receive at least 1 payment after the year of sale, you have automatically transacted an installment sale. You report your gain over the period in which you receive payment unless you elect to report all of the gain in the year of sale. Installment reporting does not apply to losses. This is called the installment method. You can use it regardless of your other accounting method for reporting income. Installment reporting does not affect the amount of gain you report, nor the characterization of that gain. It merely affects the timing of reporting the gain.

Termination payments to owners of tobacco quotas can be reported on the installment method. For example, if in 2012 a quota owner exchanged a quota for 10 annual payments of $10,000 (equal to gross proceeds of $100,000), then the quota owner receives a Form 1099-S showing gross proceeds of $100,000. Under the installment method, the owner reports only the gain attributable to the $10,000 annual payment received in 2012.

Installment reporting is explained in greater detail in Chapter 2.

Recapture

If part of the gain on an installment sale relates to depreciation recapture, this gain must be reported up front, regardless of the payments received.