Seller financing and capital gain taxes

[Alex Duarte]

Hey BP community!

I've been wondering a bit more about seller financing as of recently (thanks to Pace Morby's ep).

My question is if a person owns a property (rental) and they seller finance instead of selling the property and paying a huge chunk of capital gains, does the fact that they seller finance the deal would that mean they don't pay capital gain taxes?

[Wayne Brooks]

Originally posted by @Alex Duarte:

Originally posted by @Wayne Brooks:

@Alex Duarte Over time, the life of your seller financed loan....the seller will have the Exact Same amount of taxable capital gain and depreciation recapture.  Spreading it over multiple years May reduce his actual taxes, or it may not, depending on his other income.

 I see what you're saying and that makes sense. Do you know if they have to pay taxes on the total mortgage payment (income for seller) or just the interest rate that is charged for the year? 

They have to pay capital gains tax, and depreciation recapture, on the appropriate portions of all principal received....interest is taxed as interest income.