What is an Installment Sale?

An installment sale is a sale transaction in which the buyer commits to a series of payments made to the seller in compensation for the receipt of an asset. The total amount of these payments may be more than the amount that would be due if the buyer makes a single up-front payment, since the series of payments may include an interest charge that compensates the seller for the cost of the funds and credit risk associated with the delayed payment.

A installment sale can allow the seller to defer the recognition of revenue for tax purposes, if some of the payments are delayed into a later tax year. Delaying recognition may allow a seller to pay a lower tax rate, if there is an expectation that taxable income will be reduced in the future.