Let’s say that you sold your rental property and financed the entire sale to pocket more money from the sale. Real estate pros call this self-financing a seller takeback.
You did the takeback mortgage because this seller financing enabled you to:
Improve the selling price and sell quicker
Collect points and fees for yourself
Get a better interest rate on your investments (the takeback mortgage)
Push some of the tax bite to later years, when you expect a lower tax rate
Tax law calls your seller takeback an “installment sale,” which means you disposed of a property and received at least one payment after the close of the taxable year in which the disposition occurred.
So here you are: you’re making your expected rate of return and then wham, the buyer defaults and you have to repossess the property. How does this work out with the taxes and financially? ... Log in to view full article.