Installment sale tax treatment question

[Cheryl C.]

I've got a property that I've owned a long time and it's been depreciated down to practically nothing (condo, so no land). I'm selling and I have a buyer if I will hold the paper. Say I get 20%dp, interest only and a balloon in 5yrs, what are my tax consequences on an installment? I gather the 20% is taxed this year and the interest each year is ordinary income. Would the 20% down be taxed as a recapture of depreciation? Will they impute other gains during the 5yr interest only period?
I'd rather do a 1031, can I do this in conjunction with an installment sale? We have alot of income this year. Thanks for any clarification. I've never sold on installment.

[Dave Toelkes]

Just to clarify. In an installment sale, the principal received (including downpayment) is first applied to unrecaptured depreciation. Once all the depreciation has been "recaptured", any subsequent receipts of principal are prorated between basis and profit.

The amount applied to basis is not taxable while the amount applied to profit is taxed as capital gain in the year it is received.