Prepayment penalty & owner financing

[NA NA]

Hi, my question may be a rare one. What will happen if my buyer pays me off early. My buyer hinted at paying me off early, so let's say my buyer pays me off in 2012, right after buying it. I know it won't happen, or is unlikely, but let's play along with my potential buyer here.

If I sell to them on an installment loan (owner financing), and I get paid off in 2012, or even in 2013, won't I be taxed to high heaven because of the income it will show I made? I plan on taking every dime of the payoff and applying it to the underlying mortgage of the home, and I may end up with 2K thereafter. So what are the tax implications?

Thanks in advance.

[Steven Hamilton II]

Uncle Mo,

Yes with an installment sale that is how it works. The more that is paid the more of the profit you recognize. You will only be taxed on the profit provided your return is prepared correctly.

-Steven the Tax Guy