New Massachusetts Installment Sale Rules

Massachusetts has a special provision for the treatment of installment sales. An installment sale is defined as a disposition of property, where at least one payment is to be received after the close of the taxable year in which the disposition occurs. Any person having an installment sale transaction in a taxable year must elect between the following:

1) The taxpayer has to compute the amount of tax due on the entire gain, and deposit that amount as security with the Department of Revenue. The taxpayer then uses the installment method for federal and Massachusetts tax purposes. The taxpayer then requests its security deposit back proportionately at the end of every other year or when the tax on the entire gain has been paid; or

2) The taxpayer elects out the installment method for Massachusetts purposes and pays tax on the total gain in the year of sale. In subsequent years, any item of federal gross income included with respect to these transactions is excluded from Massachusetts gross income.

For tax years beginning on or after January 1, 2005, security under option 1) above only has to be posted if the Massachusetts gross income from the installment sale is equal to or greater than $1,000,000. 

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