Form 6252

In depth

Form 6252 is filed annually by sellers using installment sale treatment under IRC Section 453. It calculates the gross profit ratio, which determines what percentage of each principal payment is taxable gain. Interest is reported separately on Schedule B. Misconception: Form 6252 is not a one-time filing; it must be filed every year payments are received until the contract is paid off or the note is sold. Practically, contract for deed and purchase money mortgage sellers rely on Form 6252 to spread their gain over years. Selling the note in a later year triggers full gain recognition, so sellers planning to sell should consult a CPA on timing. Form 6252 also handles the depreciation recapture rules requiring full recognition in year one.