Seller Finance Question: P&I Vs Principle Reduction Payments

[Hadar Orkibi]

** Seller Finance Question** HI Guys, Im working on possible deal and the seller is willing to finance 85% of the price. His reason is that he doesn't want to pay income Tax or depreciation recovery. (Sold a business and have high income this year) We agreed on: 5% P&I, 10Y Balloon, and 25y Amort.

My Questions is: What if I suggest to him that we do SAME Amount of PAYMENTS BUT principle reduction payments and Not have interest component. this way i pay the property off faster. Would that way have any "worse" Tax implications on him?  Thanks In advance for your help!

[Hadar Orkibi]

@Ashish Acharya, thanks for the answer. the deal is still drafted so no diversion from an agreement. But in affect yes, if there in NO interest charge and only principle repayment over a set period of time, I understand that anyway the Imputed interest should be applied. 

@Ashish Acharya What is the different (from income Tax point of view) between straight out sell when Capital gain and depreciation recovery is due. And a sale by principle installments like what im describing above?

@Nicholas Scatton, because he wants to sell and doesn't want the hassle of owning.