Guide To Seller Financing Agreement Part 2

Oct 12, 2023 | Selling a Home

Using a seller financing agreement can come with several benefits. It can expand your pool of potential buyers and offer additional income from the sale. Seller financing can also provide tax benefits to the seller.

This post will cover some tax benefits that may be available by selling your home using seller financing. You can also click here to read part one of this post.

Tennessee Real Estate Market Watch

As of August 2023, the median number of days it took to sell a home in Tennessee was 47. However, housing markets are constantly shifting. If you need title services for a home sale in Tennessee, click here to contact us.

The Tax Benefits of a Seller Financing Agreement

Defer Capital Gains Tax

When you sell a house, you owe capital gains taxes on the profits from the sale. However, a seller financing agreement that uses installments can defer the need for capital gains tax. If the payments stretch into multiple years, you can pay the capital gains taxes over time.

There is also the question of whether the home was your primary residence. If that was the case, you might be exempt from capital gains taxes on the sale, so spreading the tax liability out won’t be necessary. However, it could be beneficial for second homes and investment properties.

Maintain Your Tax Bracket

One benefit of seller financing is earning interest from the loan payments. However, those loan payments count as regular income for tax purposes. This income could push some sellers over the threshold for their current tax bracket, meaning some of this additional income might have higher tax rates.

If you structure the deal properly, you can manage the income in a way that keeps you in your current tax bracket. As the seller, you need to consider your existing income and how far you are from exceeding your bracket. From there, you could determine the amount of additional income you can safely gain. Using that information, you could set the life of the loan to limit your tax liability.

These are just a couple of examples of ways seller financing can have tax benefits. Depending on your circumstances, there could be more. Property owners should consult real estate attorneys and tax professionals when planning seller financing. They can help you maximize the benefits while avoiding any tax issues.

Title Services in Tennessee

Do you need title services for a home sale in Tennessee? Click here to reach the Title Group of Tennessee. We are local title services experts ready to help you close on your home.

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