# How do capital gains tax work on a property where you finance the buyer?

I have a second property (home) which, due to tax law changes, I will now owe income tax on gains if I sell.

But how does this work if I finance the sale? Suppose the hypothetical sale price was \$100k and I paid \$50k and any profits will be taxed in the 25% tax bracket. I have made all these number up with nice round figures to make the math easy.

Suppose that I finance the buyer in a private sale, suppose I ask for \$10k down and \$426/month for 30 years. Do I now I owe taxes on \$50k, or \$12.5k which I somehow have to immediately (or by the next tax return) pay? Or could I instead somehow allocate those gains on a per year basis (and if so, how?)

Does it make a difference in how much I ask for down? Suppose I don't ask for any money down, now I have no immediate income with which to pay any tax.

Does it make a difference whether the buyer is related to me or not? What if they are a family member (as defined by IRS Pub. 527)?

Does it make a difference if I sell it below market value? For instance, suppose I sell it at \$14,000 under market value and gift the remainder to the buyer?

How would I even report this on my taxes?

• In general terms you will pay any capital gains tax on the sale (on any net profits from the sale). The financing would be completely separate and you will include any interest you earn on the financing as income and pay tax on it in the year you earn that interest. Jun 17, 2018 at 0:41
• Is the 2nd property a rental or personal use? Jun 17, 2018 at 1:57
• Are you married? Is the buyer married? I ask, because both those things change the gift tax exclusion. The gift tax exclusion for 2018 is \$15,000, so if both are married, you could give up to \$60,000 (technically your spouse and you would each give \$15,000 to the recipient and the recipient's spouse). Jun 17, 2018 at 3:44