Schedule D

9 — Long-Term Gain From Installment Sales Updated for tax year 2025

What this line means

Long-term capital gain from the sale of property held more than one year where you are receiving payments over multiple years. The gain comes from Form 6252 (Installment Sale Income) and represents only the capital gain portion of this year’s installment payments. The interest portion of each payment is reported separately as ordinary income.

Does this apply to you?

  • You sold rental property or investment real estate on an installment plan and held it more than one year
  • You are receiving payments this year from a prior-year installment sale of a long-term asset
  • You sold a business or business assets on a multi-year payment plan

Easy to overlook

Depreciation recapture is taxed at ordinary rates, not capital gains rates When you sell a rental property on installment, the gain includes depreciation recapture (Section 1250 gain). That recapture portion is taxed at up to 25%, not the lower long-term capital gains rate. Form 6252 does not split this out for you — you need to track the recapture portion separately. 1 [SOURCE: General filing pattern — installment sale of rental property]

You can elect out of installment treatment If you want to report the entire gain in the year of sale (useful if you have large losses to offset it), you can elect out of installment treatment. But the election must be made on your original return for the year of sale — you cannot change your mind later without IRS approval. 2 [SOURCE: IRS Form 6252 instructions]

Watch out for this

Reporting only the cash received in the year of sale and ignoring the gain allocation to future payments. The installment method requires you to calculate a gross profit percentage and apply it to each payment received in each year. The gain recognition happens ratably as you receive payments, not front-loaded in year one.

  • Line 2 — Schedule D — Short-term gain from installment sales (assets held one year or less)
  • Line 15 — Schedule D — Net long-term capital gain or loss
  • Form 6252 — Installment Sale Income — Calculates the gain reported on this line

Footnotes

  1. IRS Schedule D (Form 1040) Instructions. See also IRS Publication 17, Your Federal Income Tax. https://www.irs.gov/pub/irs-pdf/p17.pdf ↩

  2. IRS Form 6252 Instructions, Installment Sale Income. https://www.irs.gov/instructions/i6252 ↩

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