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2020 Publication Userid: CPM Schema: tipx Leadpct: 100% Pt. size: 8 Draft Ok to Print AH XSL/XML Fileid: … tions/P537/2020/A/XML/Cycle04/source (Init. & Date) _______ Page 1 of 20 9:26 - 25-Feb-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Publication 537 Cat. No. 15067V Contents Future Developments ............ 1 Department of the Installment Introduction .................. 2 Treasury Internal What’s an Installment Sale? ........ 2 Revenue Sales Service General Rules ................. 2 Figuring Installment Sale Income .... 3 Other Rules .................. 4 For use in preparing Electing Out of the Installment Method ................ 4 Returns Payments Received or 2020 Considered Received ........ 5 Escrow Account ............. 6 Depreciation Recapture Income .... 6 Sale to a Related Person ........ 6 Like-Kind Exchange ........... 8 Contingent Payment Sale ........ 8 Single Sale of Several Assets ...... 8 Sale of a Business ............ 8 Unstated Interest and Original Issue Discount (OID) ........ 10 Disposition of an Installment Obligation .............. 11 Repossession ............. 12 Interest on Deferred Tax ........ 15 Special Rules for Capital Gains Invested in QOF .......... 16 Reporting an Installment Sale ...... 17 How To Get Tax Help ........... 17 Index ..................... 20 Future Developments For the latest information about developments related to Pub. 537, such as legislation enacted after it was published, go to IRS.gov/Pub537. Reminders New reporting form for Qualified Opportu- nity Fund (QOF) investments. Form 8997, Initial and Annual Statement of Qualified Oppor- tunity Fund (QOF) Investments, is a new form starting in tax year 2019. Form 8997 is used to report holdings, deferred gains, and disposi- tions of QOF investments. See the instructions for Form 8997 for more information. Like-kind exchanges. Beginning after De- cember 31, 2017, section 1031 like-kind ex- change treatment applies only to exchanges of real property held for use in a trade or business or for investment, other than real property held primarily for sale. See Like-Kind Exchange, later. Photographs of missing children. The IRS is a proud partner with the National Center for Get forms and other information faster and easier at: Missing & Exploited Children® (NCMEC). Pho- • IRS.gov (English) • IRS.gov/Korean (한국어) tographs of missing children selected by the • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) Center may appear in this publication on pages • IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (Tiếng Việt) that would otherwise be blank. You can help bring these children home by looking at the Feb 24, 2021 Page 2 of 20 Fileid: … tions/P537/2020/A/XML/Cycle04/source 9:26 - 25-Feb-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. photographs and calling 1-800-THE-LOST Useful Items The installment sales method can’t be used (1-800-843-5678) if you recognize a child. You may want to see: for the following. Publication Sale of inventory. The regular sale of inven- Introduction tory of personal property doesn’t qualify as an Note. Section references within this publication 523 523 Selling Your Home installment sale even if you receive a payment after the year of sale. See Sale of a Business, are to the Internal Revenue Code, and regula- 535 535 Business Expenses tion references are to the Income Tax Regula- later. tions under the Code. 541 541 Partnerships Dealer sales. Sales of personal property by a 544 544 Sales and Other Dispositions of person who regularly sells or otherwise dispo- Installment sale. An installment sale is a sale Assets of property where you receive at least one pay- ses of the same type of personal property on ment after the tax year of the sale. If you realize 550 550 Investment Income and Expenses the installment plan aren’t installment sales. a gain on an installment sale, you may be able This rule also applies to real property held for 551 551 Basis of Assets to report part of your gain when you receive sale to customers in the ordinary course of a each payment. This method of reporting gain is 4895 4895 Tax Treatment of Property Acquired trade or business. However, the rule doesn’t called the installment method. You can’t use the From a Decedent Dying in 2010 apply to an installment sale of property used or installment method to report a loss. You can produced in farming. Form (and Instructions) choose to report all of your gain in the year of Special rule. Dealers of timeshares and sale. Schedule A (Form 1040) Schedule A (Form 1040) Itemized residential lots can treat certain sales as install- This publication discusses the general rules Deductions ment sales and report them under the install- that apply to using the installment method. It ment method if they elect to pay a special inter- Schedule B (Form 1040) Schedule B (Form 1040) Interest and also discusses more complex rules that apply est charge. For more information, see section Ordinary Dividends only when certain conditions exist or certain 453(l). types of property are sold. Schedule D (Form 1040) Schedule D (Form 1040) Capital Gains If you sell your home or other nonbusiness and Losses Stock or securities. You can’t use the install- property under an installment plan, you may ment method to report gain from the sale of Schedule D (Form 1041) Schedule D (Form 1041) Capital Gains need to read only the General Rules section be- stock or securities traded on an established se- and Losses low. If you sell business or rental property or curities market. You must report the entire gain have a like-kind exchange or other complex sit- Schedule D (Form 1065) Schedule D (Form 1065) Capital Gains on the sale in the year in which the trade date uation, also see the appropriate discussion un- and Losses falls. der Other Rules, later. Schedule D (Form 1120) Schedule D (Form 1120) Capital Gains Installment obligation. The buyer's obligation Comments and suggestions. We welcome and Losses to make future payments to you can be in the your comments about this publication and your Schedule D (Form 1120-S) Schedule D (Form 1120-S) Capital form of a deed of trust, note, land contract, suggestions for future editions. Gains and Losses and Built-in Gains mortgage, or other evidence of the buyer's debt You can send us comments through to you. IRS.gov/FormComments. Or you can write to 1040 1040 U.S. Individual Income Tax Return Internal Revenue Service, Tax Forms and Pub- 1040-NR 1040-NR U.S. Nonresident Alien Income lications, 1111 Constitution Ave. NW, IR-6526, Tax Return General Rules Washington, DC 20224. 1040-SR 1040-SR U.S. Income Tax Return for Although we can’t respond individually to If a sale qualifies as an installment sale, the Seniors each comment received, we do appreciate your gain must be reported under the installment feedback and will consider your comments as 1120 1120 U.S. Corporation Income Tax method unless you elect out of using the install- we revise our tax forms, instructions, and publi- Return ment method. cations. Do not send tax questions, tax returns, or payments to the above address. 1120-F 1120-F U.S. Income Tax Return of a See Electing Out of the Installment Method, Foreign Corporation later, for information on recognizing the entire Getting answers to your tax questions. gain in the year of sale. If you have a tax question not answered by this 4797 4797 Sales of Business Property publication or How To Get Tax Help at the end 6252 6252 Installment Sale Income Fair market value (FMV). This is the price at of this publication, go to the IRS Interactive Tax which property would change hands between a 8594 8594 Asset Acquisition Statement Under Assistant page at IRS.gov/Help/ITA where you willing buyer and a willing seller, neither being Section 1060 can find topics using the search feature or by under any compulsion to buy or sell and both viewing the categories listed. 8949 8949 Sales and Other Dispositions of having a reasonable knowledge of all the nec- Getting tax forms, instructions, and pub- Capital Assets essary facts. lications. Visit IRS.gov/FormsPubs to down- 8997 8997 Initial and Annual Statement of Sale at a loss. If your sale results in a loss, load current and prior-year forms, instructions, Qualified Opportunity Fund (QOF) and publications. you can’t use the installment method. If the loss Investments is on an installment sale of business or invest- Ordering tax forms, instructions, and ment property, you can deduct it only in the tax publications. Go to IRS.gov/OrderForms to year of sale. order current forms, instructions, and publica- What’s an Installment tions; call 800-829-3676 to order prior-year Unstated interest. If your sale calls for pay- forms and instructions. The IRS will process Sale? ments in a later year and the sales contract pro- your order for forms and publications as soon vides for little or no interest, you may have to as possible. Do not resubmit requests you’ve An installment sale is a sale of property where figure unstated interest, even if you have a loss. already sent us. You can get forms and publica- you receive at least one payment after the tax See Unstated Interest and Original Issue Dis- tion faster online. year of the sale. count (OID), later. The rules for installment sales don’t apply if you elect not to use the installment method (see Electing Out of the Installment Method, later) or the transaction is one for which the installment method may not apply.
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