Tax question - seller financing on flips

[Jim S.]

Hello tax experts! I'm a buy & hold investor that is looking to get into some small remote flips or wholesaling. Flips in general seem to come with a very high tax burden, especially if you live in HCOL area with a high W-2 income so I'm looking for ways to try to make it a little less painful.

Let's say that I had the capital to seller finance deals rather than selling for cash. This would convert the sale into an "installment sale" in the eyes of the IRS which would spread the gain over the period of the sale.

Theoretical example:

• Purchase price: $10k
• Renovations: $0 (to simplify)
• Sale price: $20k
• Note: 8% over 10 years with 10k down. $10k sale price, $121/mo for 120 months.
• Period between purchase/sale: 6 months

Since the note is over 10 years would the payments beyond year 1 be taxed at capital gains rates or my regular income if this were held in an LLC? If I wanted to do the seller financing route, would it be better to do so in an LLC or a C Corp (assuming high income living in a high income state)?

Overall I plan to hire a CPA/lawyer to help figure this all out before I make a move but before I spend the money on those services I'm just trying to figure out if I can avoid paying ~40-50% of profits in taxes, in which case I probably won't do this strategy at all.