Selling your home using a contract for sale or a takeback mortgage can create a faster sale and a good interest rate on the mortgage. Real estate pros call this type of financing a “seller takeback.” Tax law calls the transaction an “installment sale.”

If you get into this type of transaction, you need to think about what happens if the buyer defaults and you have to repossess the home.

Don’t immediately think, “Shucks!” Why? Because with a repossession done right, you can win a substantial windfall of tax-free cash. That’s the ticket.

On the other hand, repossessing your prior principal residence and not following the rules to avoid taxes can cost you tens of thousands of dollars.

This article shows you how seller financing works, what happens at the time of repossession, and the one big trick you need to know to avoid overpaying your taxes by tens of thousands of dollars. ... Log in to view full article.