Internal Revenue Code · 26 U.S.C.
§ 453. Installment method
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 453
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Added
- October 19, 1980 by Pub. L. 96–471
- Last amended
- October 22, 2004 by Pub. L. 108–357
- Amendments
- 9 dated changes in the source credit
- Length
- 12 subsections · 3,292 words · about 14 min to read
- Defines
- 13 terms
- Cross-references
- cites 14; cited by 11 Code sections and 63 other regulations
- Regulations
- 6 issued under this section
Except as otherwise provided in this section, income from an installment sale shall be taken into account for purposes of this title under the installment method.
The term “installment sale” means a disposition of property where at least 1 payment is to be received after the close of the taxable year in which the disposition occurs.
A disposition of personal property of a kind which is required to be included in the inventory of the taxpayer if on hand at the close of the taxable year.
For purposes of this section, the term “installment method” means a method under which the income recognized for any taxable year from a disposition is that proportion of the payments received in that year which the gross profit (realized or to be realized when payment is completed) bears to the total contract price.
Except as otherwise provided by regulations, an election under paragraph (1) with respect to a disposition may be made only on or before the due date prescribed by law (including extensions) for filing the taxpayer’s return of the tax imposed by this chapter for the taxable year in which the disposition occurs. Such an election shall be made in the manner prescribed by regulations.
An election under paragraph (1) with respect to any disposition may be revoked only with the consent of the Secretary.
Except in the case of marketable securities, paragraph (1) shall apply only if the date of the second disposition is not more than 2 years after the date of the first disposition.
For purposes of this subsection, if the second disposition is not a sale or exchange, an amount equal to the fair market value of the property disposed of shall be substituted for the amount realized.
If paragraph (1) applies for any taxable year, payments received in subsequent taxable years by the person making the first disposition shall not be treated as the receipt of payments with respect to the first disposition to the extent that the aggregate of such payments does not exceed the amount treated as received by reason of paragraph (1).
Any sale or exchange of stock to the issuing corporation shall not be treated as a first disposition.
A compulsory or involuntary conversion (within the meaning of section 1033) and any transfer thereafter shall not be treated as a second disposition if the first disposition occurred before the threat or imminence of the conversion.
This subsection shall not apply to a second disposition (and any transfer thereafter) if it is established to the satisfaction of the Secretary that neither the first disposition nor the second disposition had as one of its principal purposes the avoidance of Federal income tax.
The period for assessing a deficiency with respect to a first disposition (to the extent such deficiency is attributable to the application of this subsection) shall not expire before the day which is 2 years after the date on which the person making the first disposition furnishes (in such manner as the Secretary may by regulations prescribe) a notice that there was a second disposition of the property to which this subsection may have applied. Such deficiency may be assessed notwithstanding the provisions of any law or rule of law which would otherwise prevent such assessment.
The term “marketable securities” means any security for which, as of the date of the disposition, there was a market on an established securities market or otherwise.
Except as provided in paragraph (4), the term “payment” does not include the receipt of evidences of indebtedness of the person acquiring the property (whether or not payment of such indebtedness is guaranteed by another person).
The term “depreciable property” means property of a character which (in the hands of the transferee) is subject to the allowance for depreciation provided in section 167.
Paragraph (1) shall not apply if it is established to the satisfaction of the Secretary that the disposition did not have as one of its principal purposes the avoidance of Federal income tax.
For purposes of this subsection, the term “related persons” has the meaning given to such term by section 1239(b), except that such term shall include 2 or more partnerships having a relationship to each other described in section 707(b)(1)(B).
If, in a liquidation to which section 331 applies, the shareholder receives (in exchange for the shareholder’s stock) an installment obligation acquired in respect of a sale or exchange by the corporation during the 12-month period beginning on the date a plan of complete liquidation is adopted and the liquidation is completed during such 12-month period, then, for purposes of this section, the receipt of payments under such obligation (but not the receipt of such obligation) by the shareholder shall be treated as the receipt of payment for the stock.
For purposes of subparagraph (A), in the case of a controlling corporate shareholder (within the meaning of section 368(c)) of a selling corporation, an obligation acquired in respect of a sale or exchange by the selling corporation shall be treated as so acquired by such controlling corporate shareholder. The preceding sentence shall be applied successively to each controlling corporate shareholder above such controlling corporate shareholder.
For purposes of paragraph (1), the term “recapture income” means, with respect to any installment sale, the aggregate amount which would be treated as ordinary income under section 1245 or 1250 (or so much of section 751 as relates to section 1245 or 1250) for the taxable year of the disposition if all payments to be received were received in the taxable year of disposition.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the provisions of this section.
The regulations prescribed under paragraph (1) shall include regulations providing for ratable basis recovery in transactions where the gross profit or the total contract price (or both) cannot be readily ascertained.
Any disposition of personal property by a person who regularly sells or otherwise disposes of personal property of the same type on the installment plan.
Any disposition of real property which is held by the taxpayer for sale to customers in the ordinary course of the taxpayer’s trade or business.
The disposition on the installment plan of any property used or produced in the trade or business of farming (within the meaning of section 2032A(e)(4) or (5)).
Any dispositions described in clause (ii) on the installment plan if the taxpayer elects to have paragraph (3) apply to any installment obligations which arise from such dispositions. An election under this paragraph shall not apply with respect to an installment obligation which is guaranteed by any person other than an individual.
Any carrying charges or interest with respect to a disposition described in subparagraph (A) or (B) which are added on the books of account of the seller to the established cash selling price of the property shall be included in the total contract price of the property and, if such charges or interest are not so included, any payments received shall be treated as applying first against such carrying charges or interest.
In the case of any installment obligation to which paragraph (2)(B) applies, the tax imposed by this chapter for any taxable year for which payment is received on such obligation shall be increased by the amount of interest determined in the manner provided under subparagraph (B).
For purposes of clause (i), the portion of any tax attributable to the receipt of any payment shall be determined without regard to any interest imposed under subparagraph (A).
No interest shall be determined for any payment received in the taxable year of the disposition from which the installment obligation arises.
Any amount payable under this paragraph shall be taken into account in computing the amount of any deduction allowable to the taxpayer for interest paid or accrued during such taxable year.
(Added Pub. L. 96–471, § 2(a), Oct. 19, 1980, 94 Stat. 2247; amended Pub. L. 97–34, title II, § 202(c), Aug. 13, 1981, 95 Stat. 221; Pub. L. 97–448, title III, § 303, Jan. 12, 1983, 96 Stat. 2398; Pub. L. 98–369, div. A, title I, § 112(a), title IV, § 421(b)(6)(B), (C), July 18, 1984, 98 Stat. 635, 794; Pub. L. 99–514, title VI, §§ 631(e)(8), 642(a)(1)(D), (3), (b), title VIII, § 812(a), title XVIII, § 1809(c), Oct. 22, 1986, 100 Stat. 2274, 2284, 2371, 2821; Pub. L. 100–203, title X, § 10202(b), Dec. 22, 1987, 101 Stat. 1330–388; Pub. L. 100–647, title I, §§ 1006(e)(7), (i)(1), (2), 1008(g)(1), 1018(u)(25), (26), title II, § 2004(d)(1), (5), Nov. 10, 1988, 102 Stat. 3401, 3410, 3442, 3591, 3599; Pub. L. 106–170, title V, § 536(a), Dec. 17, 1999, 113 Stat. 1936; Pub. L. 106–573, § 2(a), Dec. 28, 2000, 114 Stat. 3061; Pub. L. 108–357, title VIII, § 897(a), Oct. 22, 2004, 118 Stat. 1649.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
- dealer disposition § 453(l)(1)
- dealer disposition § 453(l)(2)
- depreciable property § 453(f)(7)
- installment method § 453(c)
- installment sale § 453(b)(1)
- installment sale § 453(b)(2)
- marketable securities § 453(f)(2)
- payment § 453(f)(3)
- payments to be received § 453(f)(8)
- readily tradable § 453(f)(5)
- recapture income § 453(i)(2)
- related person § 453(f)(1)
- related persons § 453(g)(3)
Regulations under this section
Treasury regulations (26 CFR) issued under § 453
- § 1.453-3 Purchaser evidences of indebtedness payable on demand or readily tradable.
- § 1.453-9 Gain or loss on disposition of installment obligations.
- § 1.453-11 Installment obligations received from a liquidating corporation.
- § 1.453-12 Allocation of unrecaptured section 1250 gain reported on the installment method.
- § 15a.453-0 Taxable years affected.
- § 15a.453-1 Installment method reporting for sales of real property and casual sales of personal property.
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 14 other sections
- § 1033 Involuntary conversions
- § 318(a) Constructive ownership of stock
- § 267(b) Losses, expenses, and interest with respect to transactions between related taxpayers
- § 1031(b) Exchange of real property held for productive use or investment
- § 356(a) Receipt of additional consideration
- § 167 Depreciation
- § 1239(b) Gain from sale of depreciable property between certain related taxpayers
- § 707(b)(1)(B) Transactions between partner and partnership
- § 331 Gain or loss to shareholder in corporate liquidations
- § 368(c) Definitions relating to corporate reorganizations
- § 1245 Gain from dispositions of certain depreciable property
- § 751 Unrealized receivables and inventory items
- § 2032A(e)(4) Valuation of certain farm, etc., real property
- § 1274 Determination of issue price in the case of certain debt instruments issued for property
Cited by 11 Code sections
- § 26(b)(2)(O) Limitation based on tax liability; definition of tax liability
- § 163(i)(3)(B) Interest
- § 381(c)(8) Carryovers in certain corporate acquisitions
- § 451(k)(11) General rule for taxable year of inclusion
- § 453A(b)(4) Special rules for nondealers
- § 453B(e)(2)(A) Gain or loss on disposition of installment obligations
- § 469(g)(3) Passive activity losses and credits limited
- § 691(a)(4) Recipients of income in respect of decedents
- § 1259(c)(2) Constructive sales treatment for appreciated financial positions
- § 1374(d)(7)(B) Tax imposed on certain built-in gains
- § 3406(h)(6)(A) Backup withholding
Cited in 63 regulations not issued under it
- § 1.61-4 Gross income of farmers.
- § 1.163-9T Personal interest (temporary).
- § 1.170A-4 Reduction in amount of charitable contributions of certain appreciated property.
- § 1.179-1 Election to expense certain depreciable assets.
- § 1.197-2 Amortization of goodwill and certain other intangibles.
- § 1.263(a)-1 Capital expenditures; in general.
- § 1.267(f)-1 Controlled groups.
- § 1.312-6 Earnings and profits.
- § 1.332-1 Distributions in liquidation of subsidiary corporation; general.
- § 1.336-1 General principles, nomenclature, and definitions for a section 336(e) election.
- § 1.338-0 Outline of topics.
- § 1.338(h)(10)-1 Deemed asset sale and liquidation.
- § 1.367(a)-8 Gain recognition agreement requirements.
- § 1.381(c)(4)-1 Method of accounting.
- § 1.381(c)(8)-1 Installment method.
- § 1.446-1 General rule for methods of accounting.
- § 1.446-3 Notional principal contracts.
- § 1.451-1 General rule for taxable year of inclusion.
- § 1.451-3 Timing of income inclusion for taxpayers with an applicable financial statement using an accrual method of accounting.
- § 1.453A-1 Installment method of reporting income by dealers on personal property.
- § 1.453A-3 Requirements for adoption of or change to installment method by dealers in personal property.
- § 1.691(a)-5 Installment obligations acquired from decedent.
- § 1.704-3 Contributed property.
- § 1.707-3 Disguised sales of property to partnership; general rules.
Show 39 more
- § 1.737-2 Exceptions and special rules.
- § 1.818-2 Accounting provisions.
- § 1.864(c)(8)-1 Gain or loss by foreign persons on the disposition of certain partnership interests.
- § 1.884-1 Branch profits tax.
- § 1.897-1 Taxation of foreign investment in United States real property interests, definition of terms.
- § 1.897-3 Election by foreign corporation to be treated as a domestic corporation under section 897(i).
- § 1.897-6T Nonrecognition exchanges applicable to corporations, their shareholders, and other taxpayers, and certain transfers of property in corporate reorganizations (temporary).
- § 1.897-7 Treatment of certain partnership interests, trusts and estates under section 897(g).
- § 1.904-7 Transition rules.
- § 1.956-4 Certain rules applicable to partnerships.
- § 1.988-2 Recognition and computation of exchange gain or loss.
- § 1.991-1 Taxation of a domestic international sales corporation.
- § 1.1001-1 Computation of gain or loss.
- § 1.1014-10 Basis of property acquired from a decedent must be consistent with property's Federal estate tax value.
- § 1.1031(b)-2 Safe harbor for qualified intermediaries.
- § 1.1031(k)-1 Treatment of deferred exchanges.
- § 1.1038-1 Reacquisitions of real property in satisfaction of indebtedness.
- § 1.1201-1 Alternative tax.
- § 1.1231-1 Gains and losses from the sale or exchange of certain property used in the trade or business.
- § 1.1245-6 Relation of section 1245 to other sections.
- § 1.1248-1 Treatment of gain from certain sales or exchanges of stock in certain foreign corporations.
- § 1.1250-1 Gain from dispositions of certain depreciable realty.
- § 1.1251-1 General rule for treatment of gain from disposition of property used in farming where farm losses offset nonfarm income.
- § 1.1252-1 General rule for treatment of gain from disposition of farm land.
- § 1.1254-1 Treatment of gain from disposition of natural resource recapture property.
- § 1.1374-4 Recognized built-in gain or loss.
- § 1.1374-10 Effective date and additional rules.
- § 1.1400Z2(a)-1 Deferring tax on capital gains by investing in opportunity zones.
- § 1.1402(a)-2 Computation of net earnings from self-employment.
- § 1.1411-4 Definition of net investment income.
- § 1.1445-1 Withholding on dispositions of U.S. real property interests by foreign persons: In general.
- § 1.1445-5 Special rules concerning distributions and other transactions by corporations, partnerships, trusts, and estates.
- § 1.1502-13 Intercompany transactions.
- § 1.6035-1 Basis information to persons acquiring property from decedent.
- § 1.6655-2 Annualized income installment method.
- § 1.7874-4 Disregard of certain stock related to the domestic entity acquisition.
- § 1.9006-1 Interest and penalties in case of certain taxable years.
- § 13.11 Revocation of election to report income on the installment basis.
- § 31.3406(h)-1 Definitions.
Amendment history
From the source credit and the official notes, newest first.
- Amended by Pub. L. 108–357Parts changed in 2004: (f)(4)(B)
- Amended by Pub. L. 106–573Parts changed in 2000: (a)
- Amended by Pub. L. 106–170Parts changed in 1999: (a) (d)(1)
- Amended by Pub. L. 100–647Parts changed in 1988: (f)(1) (f)(8) (g)(1) (g)(3) (h)(1)(B) (h)(1)(E) (j) (k) (l)(1)(A)
- Amended by Pub. L. 100–203Parts changed in 1987: (b)(2)(A) (l)
- Amended by Pub. L. 99–514Parts changed in 1986: (f)(1) (f)(8) (g) (g)(1) (h) (h)(1)(A) (h)(1)(B) (h)(1)(E) (i)(2) (j)
- Amended by Pub. L. 98–369Parts changed in 1984: (g) (h)(1)(C) (i)
- Amended by Pub. L. 97–448Parts changed in 1983: (f)(6)(C)
- Amended by Pub. L. 97–34Parts changed in 1981: (i)
- Added by Pub. L. 96–471
Where it sits in the Code
- Subtitle A Income Taxes
- Chapter 1 NORMAL TAXES AND SURTAXES
- Subchapter E Accounting Periods and Methods of Accounting
- Part II METHODS OF ACCOUNTING
- Subpart B Taxable Year for Which Items of Gross Income Included
Nearby sections
Official notes
The Law Revision Counsel's notes for this section (amendments, effective dates and related laws) are long, so they have their own page.