Seller Financing and Tax implications for seller carrying

[Patrick Brooks]

Hi All,

I'm a new Pro member and excited about using this platform more and more. I've been in Real Estate for almost 8 years now and it may be bad that I don't know this but; when a seller carries a loan, what taxes do they incur? Is it just taxes paid on the down payment and income made off the payments/interest? 

Someone told me they thought the seller would have to pay tax on the total sales price even if he is not getting the money at once which I don't think makes logical sense.

Any input would be greatly appreciated.

[Ashish Acharya]

Originally posted by @Patrick Brooks:

Hi All,

I'm a new Pro member and excited about using this platform more and more. I've been in Real Estate for almost 8 years now and it may be bad that I don't know this but; when a seller carries a loan, what taxes do they incur? Is it just taxes paid on the down payment and income made off the payments/interest? 

Someone told me they thought the seller would have to pay tax on the total sales price even if he is not getting the money at once which I don't think makes logical sense.

Any input would be greatly appreciated.

If you sell your flips under seller financing, then it is correct you cannot use installment sales to defer capital gains. 

You can sell investment properties under installment sale and you do not have to recognize gain at once.