Owner Financing and Taxes

[Clayton Hall]

For a property in Texas, a primary residence for over 20 years and owner financing the sale when does capital gains taxes get calculated? We are trying to maximize the amount of money paid to the owner and ensure they still utilize the Section 121 exclusion. Do they calculate their tax at: the immediate sale of the property and setting up the owner financing or when the note is paid back? 

For example; do they need to have a balloon payment in 3 years to ensure that they occupied the home 2 of the previous 5 years? or Can they claim the exclusion at the time of the sale and owner financing being set up then just pay taxes on the income they receive from then forward?

Greatly appreciate any guidance to help move this deal.