Seller financing with existing mortgage being paid off
If the seller has an existing mortgage balance of say $50K on a property being sold to the buyer for $400K via seller financing, what is the tax ramification to the seller if the buyer takes out a mortgage to pay off the seller's $50K mortgage? Even though I'm a CPA, I no longer practice tax nor have significant experience with this type of installment income. My hunch is that the $50K is subject to tax and reduces the sale price when the balloon payment is made. Assuming seller initially purchased the property for $200K, then the rough calculation for gain on sale would be $400K-$50K-$200K = $150K. I hope this makes sense. Thanks in advance.