Can seller financing help with capital gains taxes?

4 Replies

Let's say a seller is going to be taxed on 100K capital gains.

Would it be advantageous for them to accept a lower price (40K lower)and carry the note? Say over 20 years they would make an additional 130K on principal/interest payment....Am I missing something?

Originally posted by @Erik S.:

Let's say a seller is going to be taxed on 100K capital gains.

Would it be advantageous for them to accept a lower price (40K lower)and carry the note? Say over 20 years they would make an additional 130K on principal/interest payment....Am I missing something?

 I may have answered this for myself. Even after cap gains, their money would make way more in the stock market....

Yes. Hypothetically, if you sold the property on an interest-only note, the capital gains and depreciation recapture would all be deferred until the final balloon payment is received. 

The better way to sell would be to use a Monetized Installment Sale. This couples the tax deferral of an interest-only installment sale with a tax-free monetization loan. The seller gets cash at closing that they can invest any way they want and the taxes are deferred for 30 years.

Account Closed

some buyers are actually willing to pay more for a property if the seller is willing to do seller financing.
The reason for this is that they may not necessarily be able to get a mortgage at a bank(they already have 10 conventional loans and are maxed out and the portfolio loan terms aren't attractive to them).

With seller financing - you don't receive all the money upfront. There is a concept of time value of money. Money received now is more valuable than the same money received in the future.


Another thing about seller-financed deals is that the tax from depreciation recapture is due upon the year of sale.