Updated August 17, 2026
An installment sale is one where the seller receives the purchase price over time rather than at closing, recognising capital gain as payments are received rather than entirely in the year of sale.
The seller effectively becomes the lender, holding a note secured by a deed of trust on the property. Interest received is ordinary income; each principal payment carries a proportional share of gain and return of basis.
The trap on a long-held LA building is that depreciation recapture is generally recognised in the year of sale regardless of how little cash was received — and Measure ULA and the transfer taxes are due at closing too. A low down payment can produce a year in which the tax owed exceeds the cash collected.
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