Whether you’re selling lemonade, clothing, cars, or real estate, the goal is always to make a profit. But in some cases, the more you make…the more they take (in taxes, that is). When you sell your house, you face a capital gains tax based on your profit. So, if your home has increased in value, your sales earnings may take a huge hit.
Luckily, you can reduce the capital gains tax on your home sale and keep more money in your pocket by using seller financing. Southern Loan Servicing wants to share this article listing the benefits of using an installment sale; here are three:
Longer repayment period. In seller-financed transactions, the note can be any length of time determined by the buyer and seller. An installment sale is spread over more than one tax year, meaning the proceeds from the sale are received over time.
Lower tax liability. Each installment is taxed in the year it’s received. By reporting your tax gain in installments, you pay a lower tax on smaller portions of the gain each year rather than reporting the entire amount of the sale and risking getting bumped into a higher tax bracket.
Interest earnings. With seller financing, the owner earns interest from the buyer. The owner also makes a steady return for an extended period of time.