What are the tax implications for the seller in a seller financed deal?

1 Reply

Hey All,

Did some research in the forums but could not find an exact answer to this one, hoping someone out there can help: What are the tax implications for the seller who owns a SFR outright and seller finances?

  Background: we are moving to a new area and heard about a house that the owner owns outright who wants to rent when he and his wife move to a retirement community because he does not want the tax burden of a windfall.  But he also does not want to be hassled with the house so plans on using a property manager.  I asked if he would be interested in seller financing, which seems a win-win for both of us, but neither of us knows what the tax implications would be.  He has probably owned the house for a long time and because of the location and current value, would have significant appreciation (well over $1M).

  I appreciate any info.  Thanks,

Vincent

seller financing is complicated and I let my CPA handle. However in general each year he is taxed on a portion of his gain and the interest. I have done deals where we significantly lower the price with a higher interest rate and a payoff penalty to protect seller, that resulted in same net price (more a less) and saved the seller significantly in taxes. Sounds like he is wise enough that could be a win-win-win for everyone. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here