INSTALLMENT SALE CALCULATOR

This calculator determines the interest and principal payments for an installment sale. An installment sale may allow an individual to defer payment of taxes on the capital gains received from the sale of real or personal property (often a business) to another party.

An installment sale occurs when at least one payment is made after the close of the tax year in which the sale took place (i.e., the sale took place in 1999, but a payment is due in 2000 or beyond). Taxpayers usually recognize gain or loss on the sale of property at the time the sale occurs. Individuals using the installment sales method, however, can defer the tax and have the capital gain recognized at the time the payment is actually received (and in proportion to its amount).

Note: Generally the installment sale method of recognizing gain does not apply to income from an installment sale if the income would be reported under an accrual method of accounting. The accrual method of accounting is where expenses and revenues are taken into account in the tax year the transaction took place. This occurs even though the seller has not necessarily received cash from the sale in that tax year. You will need to support an installment sale with written documentation (establishing the terms of the sale and an interest rate in accordance with IRS regulations). Special rules apply if the buyer and seller are related.

This calculator provides basic information that can be helpful to both sellers and buyers. It provides potential installment sale outcomes based on the information you provide. It does not reflect the complexity of setting up an installment sale. You should consult a financial advisor, estate planner, accountant or lawyer before attempting to establish an installment sale.

Purchase price:
Enter the purchase price of the property.
$
Number of payments:
Enter the number of years (1-30) to pay off installment debt.

Example: 10
(1 annually
for 10 years)
Assumed annual interest rate:
Enter the percentage of interest being paid on the unpaid balance of the purchase price. The calculator treats this as a constant rate.
%
Example: 6%
Buyer's marginal income tax rate:
The federal tax rate will be 10, 15, 25, 28, 33 or 35 percent. For more information consult Schedule 1040 instructions.
%
Example: 35%

This is a hypothetical illustration only and is not indicative of any particular investment or performance.

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