Installment Method

Installment Method

In accounting, a way to recognize revenue from the sale of an asset in which one records revenue as installment payments are made. For example, when one sells an expensive asset, such as land, he/she may record the profit (or loss) on that sale as installment payments are received, rather than all at once. This spreads out the recognition of revenue over a longer period of time, possibly several years. This can reduce one's capital gains tax liability.

installment method

The accounting method of treating revenue from the sale of an asset on installments such that profits are recognized in proportion to the percentage of the sale price collected in a given accounting period. For example, if an asset with a book value of $12,000 is sold for $15,000 and payment is to occur in 5 equal installments of $3,000 each, the seller would record annual profits of ($15,000 - $12,000)/5, or $600. The installment method is a conservative way of treating an installment sale because profit is not recognized until receipt of payment.

Installment Method

A method of accounting enabling a taxpayer to spread the recognition of gain on the sale of property over the payment period. Under this procedure, the seller computes the gross profit percent from the sale (that is, the gain divided by the contract price) and applies it to each payment received to arrive at the amount of the gain to be recognized.
References in periodicals archive ?
During the nine months ended September 30, 2014, we sold an improved, residential lot for $175,000, resulting in a gain of $105,000 and recognized $2,626,000 in deferred gains under the installment method related to the sales of certain properties in 2012 and 2013 due to full or partial principal repayments received on the carry back loans in 2014.
Thus in the example, by using the installment method the income for the year was reduced by $224,798 ($281,000 - $56,202).
The determination would also affect whether the licensor/seller would need to recognize the payments immediately or could use the installment method.
The installment method records revenue only as customer payments are received, and gross profit is recognized as a percentage of each payment.
Use like-kind exchanges or sell assets on the installment method to defer gains.
Only the capital gains portion of a sale may be "amortized" or deferred with the installment method election.
With the expectation of future income being taxed at a higher rate, the seller may consider electing out of the installment method for tax purposes.
We have decided to have the installment method to compete with others," said Karwan Tahir Abdullah, owner of Shwan car trade center, the oldest center in Suleimaniya at 40 years.
In Example 1, if the transaction takes the form of an actual asset sale, then Oldco must adopt a 12-month plan of liquidation before the sale if B is to be entitled to defer gain via the installment method.
Save Taxes by Electing Out of the Installment Method for State Taxes
The company had sold property in 1995, reporting the gain on the installment method.
Whether the purchasers agree to repay the lender an amount each year to reduce their indebtedness or whether they agree to buy the business under the installment method, life insurance is needed to offset the loss arising from the premature death of a purchaser.