What is the part of the sales price treated as interest in an installment contract with little or no stated interest?

In an installment contract where there is little or no stated interest, the part of the sales price that is treated as interest is referred to as unstated interest. This concept arises from the tax rules that require the recognition of interest income, even when it is not explicitly indicated in the contract terms. For tax purposes, the IRS may impute interest to ensure that the seller recognizes the economic benefit of receiving payments over time rather than a lump sum.

Unstated interest essentially represents the portion of the payment that exceeds the actual cost basis of the asset being financed. By establishing a value for this unstated interest, tax authorities can ensure that the seller is taxed appropriately on any economic benefit derived from the installment sale, acknowledging that the time value of money has intrinsic value.

In contrast, imputed interest relates to the concept of attributing interest to a loan or contract even in the absence of a stated rate, and while it can include unstated interest, it often refers to broader IRS rules regarding related party transactions. Market interest typically pertains to prevailing interest rates in the economy and does not directly apply to the specifics of installment contracts. Accrued interest refers to interest that accumulates over time and is usually not relevant to the context of an installment agreement with