Does Captial Gains Tax prevent sellers from wanting to use seller financing?

[Matthew Pipkin]

Thank you to everyone who takes the time to read these posts and share their experience.

My question is what would motivate a seller to use seller financing to sell their primary residence using seller financing when it would generally forfeit their exemption from paying capital gains tax? Why especially would a seller agree to a balloon payment after just 5 years since that would give them almost no time to spread out that tax over time?

The reason I ask is that I am interested in using seller financing as a buyer to purchase property and I want to be up front with the seller about the capital gains tax they would owe, but I don't see how I could make the deal look favorable to them.

[Bill Gulley]

The gain is computed as to the % of the payments received. As Will mentioned it is an advantage as the liability is spread over time unlike being due at the sale or closing and paid for that tax year. You don't avoid paying the gain on the sale over the basis.

I agree with Steve as to giving advice, you really shouldn't go there at all, especially since it appears you have little tax knowledge, no offense, but there is no exemption. Using the wrong words can get you in trouble. So, it's better to say, ask your tax adviser. I also suggest you see an attorney on your deal. :)