Seller FINANCING and CAPITAL GAINS question ? ? ?

Financing, Hard Money Lenders, Private Money
1

I am selling a rental property. It will probably sell in todays market for $370,000.

I have a buyer that cannot qualify for a 90% loan. He does not have the tax returns to show the income necessary to qualify for a 90% loan and does not have the cash for an 80% no doc loan.

If I sell the house to him for $385,000 and carryback 10% of the purchase price at a 12% interest rate will he be able to get an 80% no doc loan?

If so, will I have to pay capital gains on the entire sales price of $385,000 or only the portion I receive upfront?

How do capital gains work when I am carrying back paper?

2

You pay the large capital gain this year and the financed part (the $38,500) as you receive it…

Keith

3

I may be mistaken, but as I understand it you will pay long-term capital gains rate on the principal paid back and interest income will be taxed at regular income rate.

4

you are correct; each payment will have a interest portion and principle portion with different tax treatment