Seller Financing Calculator
Work out an owner-financed loan's payment and balloon, and how the seller is taxed on the installment sale.
Seller financing calculator
How seller (owner) financing works
In seller financing the seller acts as the bank: the buyer pays a down payment and signs a promissory note secured by a mortgage or deed of trust, and makes monthly payments to the seller. Payments are often figured on a 15- to 30-year schedule but with a balloon a few years out, when the buyer refinances or sells. Terms are negotiable; state lending and licensing laws, and the federal rules on seller-financed home loans, can limit them, so use an attorney or title company to paper the deal.
Worked example
A $300,000 sale with $30,000 down leaves a $270,000 note. At 7% amortized over 30 years, the buyer pays $1,796.32 a month, and after 5 years still owes a balloon of $254,155.
How the seller is taxed (installment sale)
The seller can report the gain as payments come in, on Form 6252 (IRS Publication 537):
- Gross profit percentage = (sale price − selling expenses − adjusted basis) ÷ contract price. Each dollar of principal received (including the down payment) is that percentage gain; the rest is tax-free return of basis.
- Interest is ordinary income in the year received. It must be at least the applicable federal rate, or the IRS imputes interest.
- Depreciation recapture on business or rental property is taxed in the year of sale even on an installment sale.
In the example, gross profit is $108,000 on a $300,000 contract price, 36%. Buyers can compare with a bank loan using the mortgage payment calculator; for rentals, see DSCR and Form 4797.
Common questions
How does seller financing work?
The seller lends the buyer part of the price and is repaid in installments, often with a balloon.
How is a seller taxed on owner financing?
Gain is reported as principal is received (installment method); interest is ordinary income.
What is a balloon payment?
The remaining loan balance due in one payment at a set date.
Sources
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General information, not financial, tax or legal advice. Check important numbers with the official source before acting on them.