Installment Sale Tax Calculator

Selling for a note: how much tax do you owe each year, and what does spreading it save?

When you finance the buyer yourself, the gain is taxed as you collect principal — but depreciation recapture is taxed in the sale year regardless. Enter the sale and the note and see the gain recognised each year, the tax with and without spreading, and how note length changes the answer.

The numbers stay in this browser tab. It does arithmetic on what you type; it is a worksheet, not tax advice. Rates depend on your other income, so you enter them.

The sale and the note

Selling price, dollars

Adjusted basis, dollars (cost plus improvements minus depreciation taken)

Selling expenses, dollars (commissions, legal)

Depreciation previously claimed, dollars (recapture)

Payments received in the sale year, dollars

Number of yearly note payments after the sale year

Note interest rate, percent

Minimum rate the IRS requires, percent (optional)

Tax rate on depreciation recapture, percent

Capital gains rate if you take it all in the sale year, percent

Capital gains rate if you spread it, percent

Extra rate on all gain and interest, percent (3.8 NIIT plus state)

Discount rate for today's dollars, percent

Fill in the figures, then click Work out the tax.

Result

Year by year

Year	Principal	Interest	Gain taxed	Tax on gain

If the note ran a different length

Yearly payments	Tax on gain	Saved vs lump sum, today's dollars	Interest received

Payments are level and fall at year end; the sale-year column holds only the payment you enter. Rates are held flat.

What it does, and what it leaves to you

Counts: gross profit (price minus basis and selling expenses); recapture taxed in the sale year and capped at the gain; the rest spread by gross profit percentage over each principal payment; interest taxed as ordinary income at the recapture rate you enter.
Not decided: whether the sale qualifies; assumed mortgages above basis; related-party and dealer rules; the 453A interest charge; alternative minimum tax; your real brackets; and whether to offer seller financing at all.

Common questions

What is an installment sale?

When you sell a business, rental property, land or other investment asset and take a promissory note from the buyer, the IRS lets you report the gain as you collect the principal instead of all in the year of sale (IRC section 453, Form 6252). Each principal payment carries a share of taxable gain equal to your gross profit divided by the contract price.

What is taxed in the first year no matter what?

Depreciation recapture. Under IRC 453(i), recapture on depreciation you claimed is recognised in full in the year of sale even if you collect nothing, and only the remaining gain is spread over the note. Interest on the note is ordinary income each year.

Why would spreading the gain save tax?

Spreading can keep each year's gain in a lower capital gains bracket (0, 15 or 20 percent) and can keep income below thresholds for the 3.8 percent net investment income tax and Medicare premium surcharges. You enter the rate you expect with and without spreading, because it depends on your other income.

What can go wrong?

The buyer can default, and tax already paid on payments received is not refunded. Notes over $5 million can trigger an interest charge on the deferred tax (IRC 453A). Sales to relatives, sales of inventory and publicly traded securities, and many depreciable-property sales to related parties are restricted. A note that pays less than the IRS minimum rate can be recharacterised in part as interest.

Does this decide whether I qualify?

No. It is a worksheet that does arithmetic on the figures you enter, using a level yearly payment on the note, payments at year end, and no assumed debt. It does not model assumed mortgages above basis, a pledged note, state differences beyond the single extra rate you enter, or the alternative minimum tax. Check with a CPA before you sign.

Is my data uploaded anywhere?

No. Everything is worked out in your browser and nothing is sent; a test in the code asserts there are no network calls.