Brad, What was your 1% guys name or email? I can't find his email. I may be interested but I am also considering a FSBO.

Usually youtube is a good reference for anything but this-not so much. It's only realtors pretending to help but basically telling you of all the reasons you should not be a FSBO.

I believe she might be trying to sell NE.

I am with you though about realtors. Some of the best terms offers come from private sales.

Holy cow the things you forget! We sold a FSBO once. Interest rates were high, plus it was a mobile home and getting a mortgage for a buyer was harder - so we sold FSBO with a mortgage at a lower rate, higher price. 15 years we got that income with quite low taxes on the sale as a result, that was nice.

I am selling on to a homeowner where I play the bank. Small loan but I am getting 10% interest.

Selling two more to an investor. I am not getting interest but I am getting above FMV and the loans are long to help stifle the tax hit from things like depreciation.

CashFlow.

I wonder which is better, cash-in-pocket-wise?

A higher price at sale (capital gains but deferred over length of note, right?) or higher interest rate (taxed at regular income in the year received?)

I have not gotten proof one way or the other. I made an assumption. Hope that I was right with it.

Regarding a property sale: I wonder which is better, cash-in-pocket , wise? A higher price at sale (capital gains but deferred over length of note, right?) or higher interest rate (taxed at regular income in the year received?)

ChatGPT said:

Yes — from a cash-in-pocket perspective, the tradeoff between a higher sale price and a higher interest rate on an installment note is essentially a tradeoff between capital gain and ordinary income.

The Tax Difference

Option

Tax Treatment

Higher sale price

Creates more capital gain. With an installment sale, the gain is recognized gradually as principal payments are received.

Higher interest rate

Interest is taxed as ordinary income in the year received. It cannot be deferred.

Why Many Sellers Prefer More Price and Less Interest

Capital gains tax rates are usually lower than ordinary income tax rates. For many taxpayers, long-term capital gains are taxed at 0%, 15%, or 20%, while ordinary income can be taxed at rates up to 37% federally.

Installment sales spread the gain over time. You pay tax only as you receive the principal payments, which can keep you in a lower tax bracket and improve cash flow.

Interest income is fully taxable each year. Even if the buyer doesn't pay off the note quickly, the interest portion is taxed annually at ordinary income rates.

Example

Suppose you could structure a sale in one of two ways:

Scenario

Price

Interest Rate

A

$200,000

8%

B

$220,000

4%

Assuming the buyer pays over many years:

Scenario B generates $20,000 more capital gain, taxed at capital gains rates and deferred over the note term.

Scenario A generates more interest income, taxed annually at ordinary income rates.

For many sellers, Scenario B results in more after-tax wealth, even though the interest income is lower.

But There Are Exceptions

A higher interest rate may be attractive if:

Your capital gain would already be taxed at 15–20% and your ordinary income tax rate is relatively low.

You need stronger cash flow immediately.

You are concerned about inflation eroding the value of future payments.

The buyer is willing to pay a substantially higher interest rate but not a higher price.

A Practical Rule of Thumb

Maximize sale price first.

Use the lowest interest rate that still satisfies IRS requirements and compensates you for the risk.

Structure the note term to spread the gain over the years that best fit your tax situation.

In other words, if you have a choice between an extra dollar of sale price and an extra dollar of interest, the extra sale price is often the more tax-efficient dollar because it is treated as deferred capital gain rather than current ordinary income.

If you're considering a specific sale amount, interest rate, and term, I can run the numbers to compare the after-tax cash received under each structure.

1/2

ChatGPT can make mistakes. Check important info.

Caution: My CPA says if I sell outright and hold a mortgage, I have to pay the capital gains on April 15.

If I sell on land contract, (contract for deed installment sale) I pay CG on the principle brought in and the interest is pure income.

BUT...Indiana law says if they default and I take the house back I must REFUND EVERY SINGLE PENNY they paid in, including whatever I collected for property taxes, insurance, utilities...even after I paid the property taxes, etc and paid income tax on the money.