IRS Publication 537 — Installment Sales
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“The buyer’s obligation is paid in full when the balance of the purchase price is deposited into the escrow account. When an escrow ac- count is established, you no longer rely on the buyer for the rest of the payments, but on the escrow arrangement.”
You must report interest as ordinary income. Interest is generally not included in a down payment. However, you may have to treat part of each later payment as interest, even if it’s not called interest in your agreement with the buyer. Interest provided in the agreement is called stated interest. If the agreement doesn’t provide for enough stated interest, there may be unstated interest or original issue discount (OID). You may have to include interest in income even in a year you receive no payment, depending on your regular method of accounting and whether the interest is unstated interest or OID. See Unstated Interest and Original Issue Discount (OID), later.
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