453 Sale
Definition:
A 453 sale, also known as an **installment sale**, is governed by **Internal Revenue Code Section 453**. It allows taxpayers to report and pay taxes on the gain from the sale of property over time as payments are received, rather than recognizing the entire gain in the year of sale. This method helps spread the tax liability and improve cash flow for sellers.
453 Sale Information
Under Section 453, an installment sale occurs when at least one payment is received after the tax year in which the sale occurs. The seller recognizes gain proportionally as each payment is received, based on the **gross profit ratio**, which is the gross profit divided by the total contract price.
Eligible property includes real estate, business assets, and certain personal property. However, inventory, publicly traded securities, and certain dealer property do not qualify for installment sale treatment. Interest income on deferred payments is also taxable and must be reported separately.
This approach benefits sellers by deferring part of the tax burden and potentially keeping them in a lower tax bracket.
Florida Legal Definition
In Florida, Section 453 sales follow **federal tax law**, as Florida does not impose a personal income tax. Sellers of Florida real estate or business interests can use the federal installment method to defer recognition of taxable gain for federal purposes.
While Florida imposes **documentary stamp taxes** on property transfers, the timing of these taxes is not affected by the installment sale method—stamp taxes are due at the time of transfer, regardless of when payments are received.
How It’s Used in Practice
In practice, a 453 sale is commonly used in real estate transactions, business sales, or other large asset transfers. The buyer agrees to make payments over time, and the seller reports a portion of the gain with each payment. Attorneys and tax professionals draft **installment sale agreements** that specify payment schedules, interest rates, and security provisions.
For example, a Florida property owner selling investment real estate may use a 453 sale to defer federal capital gains tax and receive steady income over several years. The installment method is reported on **IRS Form 6252 (Installment Sale Income)**.
Key Takeaways
- A 453 sale allows sellers to defer recognition of gain by reporting income as payments are received.
- Applies to qualifying real estate, business, or personal property sales with at least one deferred payment.
- Interest on deferred payments must also be reported as taxable income.
- Florida follows federal 453 rules, though documentary stamp taxes apply at the time of sale.
- Installment sale details are reported annually on IRS Form 6252.
- Provides cash flow and tax management advantages for sellers of large assets.
Disclaimer: The information and opinions provided are for general educational, informational or entertainment purposes only and should not be construed as legal advice or a substitute for consultation with a qualified attorney. Any information that you read does not create an attorney–client relationship with Barnes Walker, Goethe, Perron & Shea, PLLC, or any of its attorneys. Because laws, regulations, and court interpretations may change over time, the definitions and explanations provided here may not reflect the most current legal standards. The application of law varies depending on your particular facts and jurisdiction. For advice regarding your specific situation, please contact one of our Florida attorneys for personalized guidance.
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