My Dad deeded his portion of some real estate to my sister and I. He passed away in October of 2016. My sister and I each now own 25% of the property, our Aunt owns the other half. We have a couple people that are wanting to buy it and one has asked if we will finance the property for him. What are the advantage and disadvantages of selling it and getting one large payment compared to financing and getting small payments over years. =======>> in order to really profit on your home's sale, you may want to defer taking your profit in lump sum. the IRS allows taxpayers to defer gains on major sales of property or other investments with an installment sale agreement. This arrangement permits sellers to declare a prorated portion of their capital gains over several years, as long as the proper paperwork is completed during the year of the sale.
Installment sales of real estate are a form of seller financing. Instead of borrowing money from a bank or other financial institution to pay the seller, the buyer borrows from the seller. The buyer and seller enter into an installment agreement in which the buyer agrees to make a down payment and pay the remainder of the sales price over a term of years. It can be one year or hundred, it?s up to the buyer and seller to decide. The seller also agrees to pay interest on the payments. Again, it?s up to the buyer and seller to agree on the interest rate?it can be higher or lower than the rates mortgage lenders charge. The seller ordinarily takes back a purchase money mortgage from the buyer. This way the buyer?s promise to pay the seller is secured by the property that is, if the buyer doesn?t pay, the seller can foreclose and get the property back. Any sale in which at least one payment is not due until the following year qualifies as an installment sale for tax purposes. Such sales must be reported to the IRS using the installment method unless the seller opts out of using this method by filing an election with the IRS. Under the installment method, the payments received by the seller are divided into two classes:gain from the sale, and return of the seller?s basis (cost) in the property.Taxes need not be paid on the portion of the payments representing return of basisI mean the amount the seller originally paid for the property. Tax must be paid on the portion representing the gain from the sale; this is paid at capital gains rates, which are usually lower than ordinary income tax rates. The seller must also pay regular income tax on the interest paid each year.