Understanding Installment Sale of Real Estate Part 1

Nov 23, 2023 | Selling a Home, Title Group of Tennessee

Property owners have many options when selling real estate. One potentially beneficial option is an installment sale for real estate, which is a type of seller financing agreement.

This two-part post will take a closer look at what to consider when making real estate installment sales.

Tennessee Real Estate Market Watch

The median price per square foot of homes in Tennessee during September 2023 was $229. However, real estate data is always changing. Contact the Title Group of Tennessee if you need title services when buying or selling a home.

Installment Sale of Real Estate

With an installment sale, the buyer and seller agree to multiple payments over time instead of a lump-sum payment. The buyer takes possession of the property, while the seller retains a security interest.

Installment Sale Requirements

Installment sales can have several tax benefits for sellers; however, the sale must meet various requirements to be eligible. The chief requirement is that the sale has multiple payments, and at least one of the payments must also be in a different tax year from the sale. The seller must also register the sale using IRS form 6252.

Terms for an Installment Sale

An installment sale is a form of seller financing, and like other types of financing, there are important sale and loan terms to consider. The following are the terms for an installment sale:

  • Total Sale Price
  • Interest Rate
  • Down Payment
  • Payment Schedule
  • Title and Ownership
  • Default Terms

The Benefits of Installment Sales

Installment sales can be beneficial in many ways. The following are some of the ways sellers can benefit from installment sales:

  • Capital Gains Deferral: An installment sale allows the seller to defer some capital gains to future tax years. By deferring recognition, you might have a lower tax rate on the profits.
  • Interest Income: The seller can realize additional income by charging the buyer interest on the loan.
  • More Buyers: An installment sale might open a wider pool of buyers for the property. It could make the sale faster or increase competition for a higher price.
  • Gives Buyer Time: An installment sale also gives the buyer time to arrange financing for the sale.
  • Flexibility: The seller might have more room to negotiate the sale’s terms with a seller financing deal.

We recommend consulting real estate and tax professionals to help with installment sales. You can also come back for part two, where we will look closer at installment sales and taxes.

Tennessee Title Services

Do you need title services for a seller financing deal in Tennessee? Click here to contact the Title Group of Tennessee. We are local title experts who can help make the deal smoother and more secure. Reach out now to find out more about our services.

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