Do I have to pay tax on my installment sale interest?
Interest should be charged on any installment
sale and reported on your tax return. If
interest is not charged on an installment sale and reported on your tax return the
tax law
states that there is a minimum amount of interest that you as a seller are considered to
have received on the installment sale and must include on your tax
return. This is "imputed" or "unstated " interest and it is
taxable even if you didn't receive the installment sale interest and you
must report it on your tax return. To calculate the amount of imputed
installment sale interest that is
taxable to you on your tax return or to charge the lowest interest rate allowed by
tax law, you must use the Applicable
Federal Rate (AFR) that applies to the term of your installment sale at the time
of your sale. The
Applicable Federal Rate is published monthly in the Internal Revenue Bulletin. You can
also get this information by contacting the IRS at 1-800-829-1040.
If you receive total
interest including installment sale interest of over $1,500 report the entire amount
on Form 1040, Schedule B.
Related tax information
about installment sale interest
IRS publications about installment sale interest: For additional tax information on installment sale interest see IRS
Publication 537,Installment
Sales. Also see
IRS Publication 17,Your Federal Income Tax.
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For further information regarding IRS
rules and regulations and your particular tax or IRS situation you should
consult with a Certified Public Accountant, Enrolled Agent, Attorney, or
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