Seller financing interest only note( tax question)

[Alex S.]

When you sell a property seller financing via interest only loan. Do you still have to pay taxes on installment sale being that you are not getting any of you principle back yet?  Assume pay taxes on deposit portion?

What is best way to structure these to minimize capital gains taxes and recapture.

[Marco Bario]

@Alex S. - 

If there's a downpayment made at the time of sale, you will pay a corresponding portion of any taxes due in that tax year, and any other corresponding portions as the remaining principal is received. 

It's a tax planning question. If you want to defer as long as possible, an i/o loan with principal paid at maturity is best. If you want principal to trickle in slowly in order to stay within a lower tax bracket then amortized is preferred.

Or you could look into at 1031 exchange.