Installment Sales: Installment Sales & Related Parties
Quick answer
An installment sale lets a seller report gain as payments arrive, multiplying each payment by the gross profit ratio (IRC §453). Inventory and dealer sales do not qualify, and depreciation recapture is recognized fully in the year of sale. A resale by a related buyer can accelerate gain, and §1239 treats certain related-party gain as ordinary income.
Installment Sales & Related Parties is tested on EA Exam Part 2 (Property Transactions). Primary IRS reference: IRC §453.
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About this EA exam topic
Installment-sale questions test reporting gain as payments are received using the gross-profit ratio, and the exceptions that disallow installment treatment (e.g., inventory, dealer sales, depreciation recapture recognized up front).
The EA exam also tests related-party resale rules that can accelerate gain.
What you'll be tested on
- The gross-profit-ratio method for installment gain
- Items ineligible for installment reporting (recapture, inventory)
- Related-party resale acceleration
- Electing out of installment treatment
How to prepare
- Compute the gross-profit percentage and apply it to each payment.
- Remember recapture is recognized in the year of sale, not spread.
- Watch related-party resale rules.
Practice questions for Installment Sales & Related Parties
What this topic covers
Installment Sales & Related Parties appears in Part 2: Business Taxation within the Property Transactions domain. VantageEA practice questions focus on how installment sales rules are applied in realistic EA exam fact patterns.
What candidates practice
Candidates practice identifying tested facts, choosing the best multiple-choice answer, and reviewing explanations tied to IRC §453, IRC §267, IRC §1239. This topic supports timed 100-question PSI-style mock tests and shorter topic review sessions.
Related practice-question themes include installment-sales, related-parties, gross-profit-ratio, form-6252.
Frequently asked questions
How is installment-sale gain reported?
Gain is recognized as payments are received, based on the gross-profit ratio, with recapture taxed up front.
Which part?
Part 2 (Businesses).
Reference?
IRS Publication 537.
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