Form 6252
Candlefocus EditorWith an installment sale, the seller typically receives a portion of the payments right away, and the rest over time, possibly with interest attached to it. By reporting the sale on Form 6252, the seller can take the capital gains from the sale, spread out over multiple tax periods, reducing the overall tax burden that would be associated with an immediate upfront payment.
In order to complete Form 6252, the seller must first identify the year of sale, the property or asset that was sold, the total amount of the sale, the amount of the down payment, and the method in which the gain was calculated. The form must also include any interest earned from the sale and all payments made to the seller, broken down by year and installment period. Finally, the seller must report any amounts that were not paid for any other reasons, such as payments being made late or the buyer defaulting on their payments.
Recent changes to the form have allowed taxpayers to defer a portion or all of their capital gain from the sale of property into Qualified Opportunity Fund (QOF). This allows the taxpayer to save even more on their overall tax burden, as the gain can be deducted from their return and reinvested into the QOF.
It is important to note that Form 6252 must be filed along with Form 4797, which is the form used to report income received from the sale of business assets and other standard sales of property. This form is different from, and not to be confused with, Form 6251, which is used report taxable income from the sale of other properties.
Form 6252 can be complicated at times, and it is recommended that taxpayers work with either a qualified accountant or financial advisor to ensure their paperwork is prepared correctly before submitting it.