Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Dec 16, 2019

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Installment reporting is the process of spacing out reported gains over the duration of an installment plan. If you sell a capital asset under an installment agreement in which you receive partial payment and the promise of the purchaser to pay the balance of the price over time, you normally will be able to report gain over the period of payments. The installment reporting rules are quite complicated, especially if the amount of the sale price is quite large,so any party reporting gains under an installment agreement should consult an experienced attorney.

How do I calculate installment reporting?

Installment reporting is equal to the percentage of the gain equal to the percentage of the purchase price received that year. The first rule in installment reporting is to keep every transaction slip as these will be essential to your calculations. Take the transaction slips from the past year and add up the amount paid. Next, determine the percentage paid of the total overall installment agreement by dividing the amount from the past year by the total amount due. Next, determine the total gain or loss you have made on the overall sale. This is determined by subtracting your basis from the overall sales price. If the number is positive you have a gain, if negative you have a loss. Finally, multiple the total gain or loss by the percentage and this will give you the reportable amount for the year.

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How do I report payments on an installment plan?

If you are on the paying end of a settlement installment plan or installment agreement, it is your responsibility to report the settlement on your taxes. Under current law, the difference between the actual amount owed and the amount you will be paying is considered actual income, and must be reported as such.

As stated earlier, if you are dealing with paying or collecting an installment agreement, you would be wise to consult with a tax professional and a tax attorney. Remember, the consultation is tax deductible and you will be saving yourself from the possibility of an audit.