The IRS explains: “Use this form to report income from an installment sale on the installment method. Generally, an installment sale is a disposition of property where at least one payment is received after the end of the tax year in which the disposition occurs.”
It is necessary to file this form with the IRS when any real estate sale proceeds or properties are dispensed to the owner in the year after the closing date of the sale. The IRS defines an installment sale as “a sale of property where you receive at least one payment after the tax year of the sale. If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. This method of reporting gain is called the installment method.