Installment Sale Tax Calculator (Form 6252)
Enter the sale price, tax basis, assumed debt, closing cash, recapture, note terms, and tax rates. The calculator separates sale-year recapture from installment gain and builds a year-by-year seller-note tax schedule.
Total estimated tax over schedule$57,562.70
- Adjusted basis for installment-sale purposes
- $270,000.00
- Gross profit reported by installments
- $230,000.00
- Contract price
- $400,000.00
- Gross profit percentage
- 0.58%
- Excess debt treated as a sale-year payment
- $0.00
- Sale-year installment gain
- $57,500.00
- Immediate ordinary recapture income
- $40,000.00
- Seller-financed note principal
- $300,000.00
- Total note interest
- $56,094.60
Year-by-year tax schedule
| Year | Principal received | Interest | Installment gain | Basis recovery | Recapture | Estimated tax | Remaining note balance |
|---|---|---|---|---|---|---|---|
| Sale year | $100,000.00 | $0.00 | $57,500.00 | $42,500.00 | $40,000.00 | $18,225.00 | $300,000.00 |
| Note year 1 | $53,218.92 | $18,000.00 | $30,600.88 | $22,618.04 | $0.00 | $8,910.13 | $246,781.08 |
| Note year 2 | $56,412.06 | $14,806.86 | $32,436.93 | $23,975.12 | $0.00 | $8,419.19 | $190,369.02 |
| Note year 3 | $59,796.78 | $11,422.14 | $34,383.15 | $25,413.63 | $0.00 | $7,898.79 | $130,572.25 |
| Note year 4 | $63,384.59 | $7,834.33 | $36,446.14 | $26,938.45 | $0.00 | $7,347.16 | $67,187.66 |
| Note year 5 | $67,187.66 | $4,031.26 | $38,632.90 | $28,554.76 | $0.00 | $6,762.44 | $0.00 |
Assumes stated interest is reported as ordinary income and annual note payments begin in the year after sale.
How to use this calculator
- Enter the selling price, adjusted tax basis, selling expenses, and ordinary recapture amount.
- Enter any debt the buyer assumes and the cash received at closing.
- Choose the seller-note term, stated annual interest rate, and payment structure.
- Enter estimated tax rates for installment gain and ordinary income, then review the Form 6252-style schedule.
How the installment-sale tax estimate is calculated
This calculator follows the basic contract-price mechanics used for installment-sale planning under IRS Publication 537 and Form 6252. It treats stated note interest separately from principal because interest is ordinary income, while only the principal portion can carry installment-sale gross profit.
The installment-sale basis is:
installment-sale basis = adjusted basis + selling expenses + immediate ordinary recapture
The gross profit reported by installments is:
installment gross profit = selling price - installment-sale basis
If the buyer assumes debt that is larger than the installment-sale basis, the excess is treated as a payment in the year of sale. Contract price is therefore:
contract price = selling price - buyer-assumed debt + excess debt payment
The gross profit percentage is:
gross profit percentage = installment gross profit ÷ contract price
Closing cash and any excess assumed debt are sale-year payments. The sale-year installment gain is that payment multiplied by the gross profit percentage. Immediate ordinary recapture is not spread over the note; it is shown in the sale year and taxed with the ordinary-income rate you enter.
How the note schedule works
The seller-financed note principal is the selling price minus assumed debt and closing cash. For a level-payment note, the annual payment uses the amortization formula payment = principal × rate ÷ (1 - (1 + rate)^-years), with a straight principal split when the rate is zero. For an equal-principal note, the same principal amount is repaid each year and interest declines as the balance falls.
Each note year reports principal received, stated interest, installment gain, basis recovery, estimated tax, and remaining balance. Note-year installment gain is:
principal received × gross profit percentage
Estimated tax for each note year is:
installment gain × gain tax rate + interest × ordinary-income tax rate
What moves the answer most
The biggest drivers are basis, selling expenses, recapture, assumed debt, and the size of the down payment. More basis or recapture lowers the installment gross profit percentage. More closing cash accelerates gain into the sale year. More assumed debt can also accelerate gain when the debt exceeds the installment-sale basis.
What this calculator leaves out
This is a planning estimate, not a completed tax return. It does not decide whether the property qualifies for installment reporting, whether a seller should elect out, or how gain should be characterized beyond the recapture amount entered. It does not calculate imputed interest, original issue discount, applicable federal rate compliance, Section 453A interest, Net Investment Income Tax, alternative minimum tax, state-specific rules, contingent payments, related-party rules, repossessions, dealer dispositions, inventory, publicly traded securities, or home-sale exclusions.
Worked example
Suppose the selling price is $500,000, adjusted tax basis is $200,000, selling expenses are $30,000, immediate ordinary recapture is $40,000, buyer-assumed debt is $100,000, and closing cash is $100,000. The installment-sale basis is $270,000, so installment gross profit is $230,000. Because the assumed debt does not exceed basis, the excess-debt payment is $0 and the contract price is $400,000. The gross profit percentage is 57.5%.
The sale-year installment gain is $57,500, and ordinary recapture income is $40,000. With a 15% gain tax rate and 24% ordinary-income rate, sale-year estimated tax is $18,225. A $300,000 seller note at 6% over five level annual payments generates about $56,094.60 of total note interest. Across the sale year and note years, the estimated tax is about $57,562.70.
Common questions
How does Form 6252 calculate the gross profit percentage?
The gross profit percentage is installment gross profit divided by contract price. Installment gross profit starts with selling price and subtracts adjusted basis, selling expenses, and ordinary recapture reported in the sale year. That percentage is then applied to principal payments, not to stated interest.
Why is contract price different from selling price?
Contract price removes buyer-assumed debt because that debt is not a future cash payment to the seller. If the assumed debt is larger than the installment-sale basis, the excess is added back because it is treated as a sale-year payment. This is why debt can change both timing and percentage of gain.
When is an assumed mortgage treated as a payment?
An assumed mortgage is treated as a payment to the extent it exceeds the installment-sale basis. The calculator reports that excess separately and includes it in sale-year installment gain. Assumed debt that does not exceed installment-sale basis reduces contract price but is not itself shown as a payment.
Is depreciation recapture deferred in an installment sale?
Ordinary depreciation recapture is generally reported in full in the year of sale before the remaining gain is spread under the installment method. This calculator uses the recapture amount you enter and taxes it in the sale year. It does not decide the proper recapture amount or distinguish every possible gain category.
How are principal, interest, gain, and basis recovery separated?
The note schedule first splits each annual payment into principal and stated interest. Interest is taxed with the ordinary-income rate. Principal is multiplied by the gross profit percentage to estimate installment gain, and the rest of the principal is shown as basis recovery.
What interest rate must an installment note charge?
The note should be checked against the applicable federal rate and other imputed-interest rules for the transaction date and terms. This calculator uses the stated rate you enter only for the payment schedule and ordinary interest income. It does not test AFR compliance, original issue discount, or unstated-interest rules.