Seller Financing and Capital Gains. Are they not applied or just deferred?

[William Coet]

Trying to spell out the benefits of seller financing to a seller.  Any suggestions are welcome.

Info: Seller owns the multifamily house  outright and has owned it for 40 years.  They will be facing a capital gains payment of around $110,000 (Ouch!).

Questions:

1.  If i give them a down payment and they finance the sale over 20 years, are the capital gains deferred or is it taxed at the income tax rate?

2.  If capital gains are deferred does that mean they pay each year? 

3.  Do they pay on the interest and the principal, or only one of them?

Thank you for any info.