You need to check with a CPA, and know the laws of your state. Don’t rely solely on advice here.
That said, if you sell using an installment contract, you will not be taxed on the entire gain, but only on what you receive in a given year, including your down payment receipt.
However, depending on how long you’ve owned the property and whether it was a personal residence, or not, you will pay ordinary income taxes on the entire gain, when your tenant/buyer exercises his option.
Naked lease/options do not reduce your tax burden, unless your using it just to delay a sale until it qualifies for long term gains.
On the other hand, installment contracts will reduce your tax burden since you’re only taxed on the income for that year, not the entire sale price in that year. This assumes that you’re not selling your primary residence. In that event there’s a whole different deal going on tax-wise.
Don’t rely on what I say, you MUST talk to a CPA.
You won’t get into ‘dealer’ problems unless you screw somebody, and come to the attention of the state, and you’ve flipped like 10 properties in a single year. Then you’re apt to have some problems.
As an aside, if you get good at repeating what you’re describing, you’re going to make some serious money, without working full time for it. One of my associates surprised me about two months ago, after sharing with me how he ‘Frankensteins’ options, leases and sub2 financing together on upside down houses and nets an average of $14k per transaction.
He completed 10 of these last year. That’s just a measly $140k! That’s not all he’s doing, but I mention this, because if you can find deals with equity, and turn around and offer temporary financing to buyers who need it, you’ll find more buyers than you need.