Tax Implications of Balloon Payment?

[Andrew Taylor]

We sold a property last year and are carrying the note. Buyer has been making monthly payments and is due to make the balloon payment in a few months. I'm wondering what the tax implications are for both the payments I've collected, and the balloon payment when I receive it.

If it matters, the property was our primary residence at the time of sale. I assume I need to declare the interest collected on my personal tax return, but I'm unsure of how to handle the sale proceeds when I collect the balloon. We're planning to pay some debts with the money and invest the rest.

Thanks in advance for your advice (and my apologies in advance if the mobile app removed all the line breaks and made this one huge paragraph).

[Ashish Acharya]

@Andrew Taylor , 

from 2013 until late 2015 - was it rented?  - If yes, there is something called non-qualified use and capital gain will be taxable related to that period. 

Based on your timing, you only lived in the house around a year ( late 2015- late 2016).  If your move out was because of work, health, or unemployment, you can qualify for the partial sec 121 exclusion.  If not,you dont. 

In your case basis does matter. Generally, your basis would be any price you paid plus capital improvements. 

While calculating capital gain, part of the gain will be taxed as unrecaptured section 1250 deprecation that is taxed at max 25% depending on your tax bracket. 

If you are not sure about all this, may be worth talking to professional.