Tax on Seller financing

[Account Closed]

Im considering a seller financed deal on some properties where I have significant gain. The properties are worth about $220K, Purchase price was about $145K and of course deferred depreciation for about 7 years so total gain maybe in the range of $160K+. 1031 is not an option for me at this time. If I seller finance on a 3-5 year note, how are the taxes calculated? I would collect 30 years amortized payment (P&I) and balloon in 3 or 5 years. So how do I calculate annual capital gains tax in that scenario?

[Ashish Acharya]

Originally posted by @Account Closed:

Im considering a seller financed deal on some properties where I have significant gain. The properties are worth about $220K, Purchase price was about $145K and of course deferred depreciation for about 7 years so total gain maybe in the range of $160K+. 1031 is not an option for me at this time. If I seller finance on a 3-5 year note, how are the taxes calculated? I would collect 30 years amortized payment (P&I) and balloon in 3 or 5 years. So how do I calculate annual capital gains tax in that scenario?

You will have to calculate payments and multiplied the payments by your gross profit percentage. Most of the time your accountant he’s going to help you do that.

The payment is divided into three parts. Principal, interest, and cap gain

We cannot tell you how much capital gain tax you are going to pay because we do not know which tax bracket you will fall. You will have to pile up your capital gain on top of your other income and see which bracket you  will follow.