A cash basis taxpayer sold investment land in 2018 for $200,000. He received $40,000 in the year of sale and $160,000 in 2019. The cost of the land was $80,000. Under the installment method, the taxpayer would report a $24,000 gain in 2018.

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The installment method allows taxpayers to report gain on the sale of property over the period in which they receive payments, rather than in the year of sale. Under the installment method, the gain for the year of sale is calculated by multiplying the total gain by the percentage of the sale price received in that year. In this case, the total gain is $120,000 ($200,000 sale price - $80,000 cost) and the percentage received in 2018 is 20% ($40,000 received in 2018 / $200,000 total sale price). Therefore, the gain reported in 2018 would be $24,000 ($120,000 gain x 20% received in 2018). The remaining gain of $96,000 ($120,000 gain - $24,000 gain reported in 2018) will be reported in 2019.

A Cash Basis Taxpayer Sold Investment Land in 2018 for $200,000