A bond or other evidence of debt you receive from the buyer that is payable on demand is treated as a payment in the year you receive it. However, its full face value is included when figuring the selling price and the contract price. Payments you receive on the note are used to figure your gain in the year you receive them. If a third party or government agency guarantees the buyer's payments to you on an installment obligation, the guarantee itself is not considered payment. An installment sale contract generally provides that each deferred payment on the sale will include interest or there will be an interest payment in addition to the principal payment.
Interest provided in the contract is called stated interest.
If an installment sale contract does not provide for adequate stated interest, part of each payment due more than 6 months after the date of sale may be treated as interest. The amount treated as interest is referred to as unstated interest. When the stated interest rate in the contract is lower than the applicable federal rate, unstated interest is the difference between interest figured at the federal rate and interest figured at the rate specified in the sales contract. You can get this information by contacting an IRS office. Generally, the unstated interest rules do not apply to a debt given in consideration for a sale or exchange of personal-use property.