It is true that an installment sale is a sale in which at least a portion of the sale proceeds is recognized in a future tax year.
Installment sales are a form of revenue recognition in which revenue and expenses are recognized when money is exchanged. Installment sales require the buyer to make regular payments. This method is useful for taxpayers who want to defer capital gains to future years.
Installment sales do not require multiple payments over several years. For example, a sale by a taxpayer for a calendar year ending December 31, 2021 and paid on January 1, 2022 would be considered an installment sale because at least one payment would be made in the year following the year of sale.
Installment sale agreements provide that deferred payments include interest or require interest payments in addition to the principal payment. The contractually stated interest is called the reported interest.
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