Can you elect out of the installment method?

What electing out means

A sale that qualifies as an installment sale must be reported under the installment method unless you elect out. The publication describes the election in one sentence: you generally report the entire gain in the year of sale, even though you do not receive all the sale proceeds in that year. Principal payments you receive in later years are then not income again, while interest on the buyer's note is still ordinary income each year.

For the amount of gain, the publication points to Regulations section 1.1001-1(g). Generally the amount realized is the issue price of the buyer's debt instrument, or, if the issue price is determined as its stated redemption price at maturity, the stated principal amount reduced by any unstated interest figured under section 483. See the gross profit percentage page for how the installment method alternative is computed.

The publication's $22,000 example

You sold a parcel of land for $50,000. You received a $10,000 down payment and will receive the balance over 10 years at $4,000 a year plus 8% interest. The buyer gave you a $40,000 note with adequate stated interest, so its issue price is $40,000. You paid a 6% commission, $3,000, to a broker. The land cost $25,000 and you owned it for more than a year.

Gain realized is the $50,000 selling price minus the $25,000 basis and $3,000 commission, which is $22,000. Gain recognized in the year of sale is cash of $10,000 plus the note's $40,000 issue price, a total of $50,000, minus the same $28,000, again $22,000. The publication says the recognized gain is long-term capital gain, that you include all of it in the year of sale, and that you do not include later principal payments. Enter those numbers above to reproduce it. The tool also shows what the installment method would have put in year one for the same facts: the gross profit percentage is 44% ($22,000 divided by $50,000), so the $10,000 down payment would carry $4,400 of gain. That comparison is our own arithmetic using the publication's formula, not a figure printed in it.

How and when to make the election

The publication gives two instructions. First, how: do not report the sale on Form 6252. Report it on Form 8949, Form 4797, or both. Second, when: make the election by the due date, including extensions, for filing your return for the year the sale takes place.

There is a limited fix if you file on time but forget: you can still make the election by filing an amended return within six months of the due date of the return, excluding extensions. Write "Filed pursuant to section 301.9100-2" at the top of the amended return and file it where you filed the original.

Revoking the election

The publication says that once made, the election can be revoked only with IRS approval, and that a revocation is retroactive. You will not be allowed to revoke it if one of the purposes is to avoid federal income tax, or if the tax year in which any payment was received has closed. Because of that, the practical point is to decide before you file: compare the tax cost of recognizing everything now against spreading it, taking into account your other income and the rates that apply in each year.

Things the election does not change

Electing out does not affect whether a loss can be reported; the publication says you cannot use the installment method for a loss in any case. It also does not remove the unstated interest rules, which can apply to a sale with little or no stated interest. And the installment method is unavailable by rule for inventory, dealer sales and publicly traded stock or securities, so there is nothing to elect out of in those cases.

Sources

• IRS Publication 537, Installment Sales (2025): Electing Out of the Installment Method. Read November 2, 2026.

Edition read: Publication 537 (2025), for use in preparing 2025 returns. Dollar thresholds on this page are the figures printed in that edition; check the current publication, Form 6252 and its instructions for your tax year. This page summarizes the publication and does not replace it.