If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for adequate stated interest payable with the deferred payments. That interest generally is taxable as ordinary income in the same manner as any other interest income. However, if the interest is not unconditionally payable at least annually, then the amount of interest to be reported for a taxable year may be subject to the provisions of the Code dealing with original issue discount.
If an installment contract doesn't provide for adequate stated interest, the amount of interest to be reported for a taxable year will be determined under the provisions of the Code dealing with imputed interest or original issue discount. Report interest income from an installment sale payment on Form 1040, U.S. Individual Income Tax Return.
If your taxable interest income is more than $1,500, be sure to include that income on Schedule B (Form 1040), Interest and Ordinary Dividends and attach it to your return.
You may receive a letter or similar document instead of a Form 1099-INT, Interest Income or Form 1099-OID, Original Issue Discount reporting your interest income. You still need to report it in full on your tax return.