US Code

Public Law 119-73 (01/23/2026)

26 U.S.C. § 453A

Special rules for nondealers

(a)

General rule

In the case of an installment obligation to which this section applies—
(1)
interest shall be paid on the deferred tax liability with respect to such obligation in the manner provided under subsection (c), and
(2)
the pledging rules under subsection (d) shall apply.
(b)

Installment obligations to which section applies

(1)

In general

This section shall apply to any obligation which arises from the disposition of any property under the installment method, but only if the sales price of such property exceeds $150,000.

(2)

Special rule for interest payments

For purposes of subsection (a)(1), this section shall apply to an obligation described in paragraph (1) arising during a taxable year only if—
(A)
such obligation is outstanding as of the close of such taxable year, and
(B)
the face amount of all such obligations held by the taxpayer which arose during, and are outstanding as of the close of, such taxable year exceeds $5,000,000.
Except as provided in regulations, all persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as one person for purposes of this paragraph and subsection (c)(4).
(3)

Exception for personal use and farm property

An installment obligation shall not be treated as described in paragraph (1) if it arises from the disposition—
(A)
by an individual of personal use property (within the meaning of section 1275(b)(3)), or
(B)
of any property used or produced in the trade or business of farming (within the meaning of section 2032A(e)(4) or (5)).
(4)

Special rule for timeshares and residential lots

llAn installment obligation shall not be treated as described in paragraph (1) if it arises from a disposition described in section 453()(2)(B), but the provisions of section 453()(3) (relating to interest payments on timeshares and residential lots) shall apply to such obligation.

(5)

Sales price

For purposes of paragraph (1), all sales or exchanges which are part of the same transaction (or a series of related transactions) shall be treated as 1 sale or exchange.

(c)

Interest on deferred tax liability

(1)

In general

If an obligation to which this section applies is outstanding as of the close of any taxable year, the tax imposed by this chapter for such taxable year shall be increased by the amount of interest determined in the manner provided under paragraph (2).

(2)

Computation of interest

For purposes of paragraph (1), the interest for any taxable year shall be an amount equal to the product of—
(A)
the applicable percentage of the deferred tax liability with respect to such obligation, multiplied by
(B)
the underpayment rate in effect under section 6621(a)(2) for the month with or within which the taxable year ends.
(3)

Deferred tax liability

For purposes of this section, the term “deferred tax liability” means, with respect to any taxable year, the product of—
(A)
the amount of gain with respect to an obligation which has not been recognized as of the close of such taxable year, multiplied by
(B)
the maximum rate of tax in effect under section 1 or 11, whichever is appropriate, for such taxable year.
For purposes of applying the preceding sentence with respect to so much of the gain which, when recognized, will be treated as long-term capital gain, the maximum rate on net capital gain under section 1(h) shall be taken into account.
(4)

Applicable percentage

For purposes of this subsection, the term “applicable percentage” means, with respect to obligations arising in any taxable year, the percentage determined by dividing—
(A)
the portion of the aggregate face amount of such obligations outstanding as of the close of such taxable year in excess of $5,000,000, by
(B)
the aggregate face amount of such obligations outstanding as of the close of such taxable year.
(5)

Treatment as interest

Any amount payable under this subsection shall be taken into account in computing the amount of any deduction allowable to the taxpayer for interest paid or accrued during the taxable year.

(6)

Regulations

The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this subsection including regulations providing for the application of this subsection in the case of contingent payments, short taxable years, and pass-thru entities.

(d)

Pledges, etc., of installment obligations

(1)

In general

For purposes of section 453, if any indebtedness (hereinafter in this subsection referred to as “secured indebtedness”) is secured by an installment obligation to which this section applies, the net proceeds of the secured indebtedness shall be treated as a payment received on such installment obligation as of the later of—
(A)
the time the indebtedness becomes secured indebtedness, or
(B)
the time the proceeds of such indebtedness are received by the taxpayer.
(2)

Limitation based on total contract price

The amount treated as received under paragraph (1) by reason of any secured indebtedness shall not exceed the excess (if any) of—
(A)
the total contract price, over
(B)
any portion of the total contract price received under the contract before the later of the times referred to in subparagraph (A) or (B) of paragraph (1) (including amounts previously treated as received under paragraph (1) but not including amounts not taken into account by reason of paragraph (3)).
(3)

Later payments treated as receipt of tax paid amounts

If any amount is treated as received under paragraph (1) with respect to any installment obligation, subsequent payments received on such obligation shall not be taken into account for purposes of section 453 to the extent that the aggregate of such subsequent payments does not exceed the aggregate amount treated as received under paragraph (1).

(4)

Secured indebtedness

For purposes of this subsection indebtedness is secured by an installment obligation to the extent that payment of principal or interest on such indebtedness is directly secured (under the terms of the indebtedness or any underlying arrangements) by any interest in such installment obligation. A payment shall be treated as directly secured by an interest in an installment obligation to the extent an arrangement allows the taxpayer to satisfy all or a portion of the indebtedness with the installment obligation.

(e)

Regulations

The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including regulations—
(1)
disallowing the use of the installment method in whole or in part for transactions in which the rules of this section otherwise would be avoided through the use of related persons, pass-thru entities, or intermediaries, and
(2)
providing that the sale of an interest in a partnership or other pass-thru entity will be treated as a sale of the proportionate share of the assets of the partnership or other entity.

Pub. L. 96–471, § 2(a)94 Stat. 2251Pub. L. 99–514, title VIII, § 812(b)100 Stat. 2371Pub. L. 100–203, title X, § 10202(c)[(1)]101 Stat. 1330–390Pub. L. 100–647, title I, § 1008(g)(2)102 Stat. 3442Pub. L. 101–239, title VII103 Stat. 2412Pub. L. 103–66, title XIII, § 13201(b)(4)107 Stat. 459Pub. L. 106–170, title V, § 536(b)113 Stat. 1936Pub. L. 115–97, title I, § 13001(b)(2)(C)131 Stat. 2096(Added , , ; amended , , ; , , ; , title II, § 2004(d)(2), (7), (8), title V, § 5076(a), (b)(1), , , 3599, 3600, 3682; , §§ 7812(c)(2), 7815(g), 7821(a)(1)–(3), (4)(B), , , 2420, 2423, 2424; , , ; , , ; , , .)

Editorial Notes

Prior Provisions

section 453 of this titleProvisions similar to those comprising this section were contained in former .

Amendments

Pub. L. 115–972017—Subsec. (c)(3). struck out “or 1201 (whichever is appropriate)” after “1(h)” in concluding provisions.

Pub. L. 106–1701999—Subsec. (d)(4). inserted at end “A payment shall be treated as directly secured by an interest in an installment obligation to the extent an arrangement allows the taxpayer to satisfy all or a portion of the indebtedness with the installment obligation.”

Pub. L. 103–661993—Subsec. (c)(3). inserted at end “For purposes of applying the preceding sentence with respect to so much of the gain which, when recognized, will be treated as long-term capital gain, the maximum rate on net capital gain under section 1(h) or 1201 (whichever is appropriate) shall be taken into account.”

Pub. L. 101–239, § 7821(a)(1)1989—Subsec. (b)(2)(B). , substituted “such obligations held by the taxpayer” for “obligations of the taxpayer described in paragraph (1)”.

Pub. L. 101–239, § 7815(g)Subsec. (b)(3). , substituted “Exception for personal use and farm property” for “Exception for farm property” in heading and amended text generally. Prior to amendment, text read as follows: “An installment obligation shall not be treated as described in paragraph (1) if it arises from the disposition of any property used or produced in the trade or business of farming (within the meaning of section 2032A(e)(4) or (5).”

Pub. L. 101–239, § 7812(c)(2), substituted “(5)).” for “(5).”

Pub. L. 101–239, § 7821(a)(4)(B)Subsec. (c)(5), (6). , added par. (5) and redesignated former par. (5) as (6).

Pub. L. 101–239, § 7821(a)(3)Subsec. (d)(1)(B). , substituted “the time the proceeds” for “the proceeds”.

Pub. L. 101–239, § 7821(a)(2)Subsec. (d)(2)(B). , substituted “the later of the times referred to in subparagraph (A) or (B) of paragraph (1)” for “such secured indebtedness was incurred”.

Pub. L. 100–647, § 5076(b)(1)1988—, struck out “of real property” after “rules for nondealers” in section catchline.

Pub. L. 100–647, § 5076(a)Subsec. (b)(1). , amended par. (1) generally. Prior to amendment, par. (1) read as follows: “This section shall apply to any obligation which arises from the disposition of real property under the installment method which is property used in the taxpayer’s trade or business or property held for the production of rental income, but only if the sales price of such property exceeds $150,000.”

Pub. L. 100–647, § 2004(d)(7)Subsec. (b)(2). , inserted “and subsection (c)(4)” after “of this paragraph” in last sentence.

Pub. L. 100–647, § 2004(d)(8)Subsec. (b)(3). , substituted “farm property” for “personal use and farm property” in heading and amended text generally. Prior to amendment, text read as follows: “An installment obligation shall not be treated as described in paragraph (1) if it arises from the disposition—

“(A) by an individual of personal use property (within the meaning of section 1275(b)(3)), or

“(B) of any property used or produced in the trade or business of farming (within the meaning of section 2032A(e)(4) or (5)).”

Pub. L. 100–647, § 1008(g)(2)Pub. L. 100–203Subsec. (c). , substituted “453(k)” for “453(j)” in subsec. (c) as in effect on date before the date of enactment of ().

Pub. L. 100–647, § 2004(d)(2)Subsec. (e). , added subsec. (e).

Pub. L. 100–2031987— substituted “Special rules for nondealers of real property” for “Installment method for dealers in personal property” in section catchline and amended text generally, revising and restating as subsecs. (a) to (d) provisions of former subsecs. (a) to (c).

Pub. L. 99–514, § 812(b)(1)1986—Subsec. (a)(2). , struck out last sentence which read as follows: “This paragraph shall not apply with respect to sales of personal property under a revolving credit type plan.”

Pub. L. 99–514, § 812(b)(2)Subsec. (c). , added subsec. (c).

Statutory Notes and Related Subsidiaries

Effective Date of 2017 Amendment

Pub. L. 115–97section 13001(c)(1) of Pub. L. 115–97section 11 of this titleAmendment by applicable to taxable years beginning after , see , set out as a note under .

Effective Date of 1999 Amendment

Pub. L. 106–170section 536(c) of Pub. L. 106–170section 453 of this titleAmendment by applicable to sales or other dispositions occurring on or after , see , set out as a note under .

Effective Date of 1993 Amendment

Pub. L. 103–66section 13201(c) of Pub. L. 103–66section 1 of this titleAmendment by applicable to taxable years beginning after , see , set out as a note under .

Effective Date of 1989 Amendment

Pub. L. 101–239Pub. L. 100–647section 7817 of Pub. L. 101–239section 1 of this titleAmendment by sections 7812(c)(2) and 7815(g) of effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, , to which such amendment relates, see , set out as a note under .

Pub. L. 101–239Pub. L. 100–203, title Xsection 7823 of Pub. L. 101–239section 26 of this titleAmendment by section 7821(a)(1)–(3), (4)(B) of effective as if included in the provision of the Revenue Act of 1987, , to which such amendment relates, see , set out as a note under .

Effective Date of 1988 Amendment

section 1008(g)(2) of Pub. L. 100–647Pub. L. 99–514section 1019(a) of Pub. L. 100–647section 1 of this titleAmendment by effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, , to which such amendment relates, see , set out as a note under .

Pub. L. 100–647Pub. L. 100–203, title Xsection 2004(u) of Pub. L. 100–647section 56 of this titleAmendment by section 2004(d)(2), (7), (8) of effective, except as otherwise provided, as if included in the provisions of the Revenue Act of 1987, , to which such amendment relates, see , set out as a note under .

Pub. L. 100–647, title V, § 5076(c)102 Stat. 3683

“(1)

In general .—

Except as provided in paragraph (2), the amendments made by this section [amending this section] shall apply to sales after .
“(2)

Binding contract, etc .—

The amendments made by this section shall not apply to any sale on or before , if—
“(A)
such sale is pursuant to a written binding contract in effect on , and at all times thereafter before such sale,
“(B)
such sale is pursuant to a letter of intent in effect on , or
“(C)
there is a board of directors or shareholder approval for such sale on or before .”
, , , provided that:

Effective Date of 1987 Amendment

Pub. L. 100–203Pub. L. 100–203section 453 of this titleAmendment by applicable to dispositions in taxable years beginning after , with special rules for non-dealers and coordination with Tax Reform Act of 1986, see section 10202(e)(1), (3), (5) of , set out as a note under .

Effective Date

section 6(a)(4) of Pub. L. 96–471section 453 of this titleFor effective date, see , set out as a note under .

Certain Repledges Permitted

Pub. L. 100–647, title VI, § 6031102 Stat. 3695

“(a)

General Rule .—

Section 453A(d) of the 1986 Code (relating to pledges, etc., of installment obligations) shall not apply to any pledge after , of an installment obligation to secure any indebtedness if such indebtedness is incurred to refinance indebtedness which was outstanding on , and which was secured on such date and all times thereafter before such refinancing by a pledge of such installment obligation.
“(b)

Limitation .—

Subsection (a) shall not apply to the extent that the principal amount of the indebtedness resulting from the refinancing exceeds the principal amount of the refinanced indebtedness immediately before the refinancing.
“(c)

Certain Refinancings Permitted .—

For purposes of subsection (a), if—
“(1)
a refinancing is attributable to the calling of indebtedness by the creditor, and
“(2)
such refinancing is not with the creditor under the refinanced indebtedness or a person related to such creditor,
such refinancing shall, to the extent the refinanced indebtedness qualifies under subsections (a) and (b), be treated as a continuation of such refinanced indebtedness.”
, , , provided that:

Pub. L. 99–514Amendment by Treated as Change in Method of Accounting

section 812(c)(2) of Pub. L. 99–514section 453 of this titleFor provisions requiring change in accounting method in the case of any taxpayer who made sales under revolving credit plan and was on installment method under this section for such taxpayer’s last taxable year beginning before , see , set out as an Effective Date of 1986 Amendment note under .