Tax implications of seller financing on small apartment building

[Jacob Sharp]

I am in negotiations with the seller of a small apartment building (6 units).  The seller has owned the property for a long time and it is fully depreciated.  However, before we put pen to paper he is trying to figure out the best way to defer his tax liability.  He does not need the money from the property immediately and we have agreed to terms for seller financing that include the following:

purchase price: $140,000
interest rate: 7%
term: 15 years

If we proceed with the transactions given the above terms, what kinds of tax liability would he have?  Is there some other way we should be looking at this transaction to ease the tax burden?  

This is the first of many potential deals with this seller so I am trying to do my homework and make this first one go as smoothly as possible.

If any other details are needed, please let me know!

Thanks!

[Brandon Hall]

@Jacob Sharp

He will owe depreciation recapture in the year of the sale at a 25% rate. Thereafter, he will pay tax on capital gains and interest income from your monthly payments.