CarryThePaper.comYour home may have become more than a place to live.
After decades of ownership, a home may represent substantial accumulated equity. If you do not need all of it on closing day, seller financing may convert part of that equity into a stream of principal and interest payments.
What could my home become?
Home history and estimated basis
Qualifying capital improvements entered
Qualifying capital improvements may increase adjusted basis. Ordinary maintenance and repairs generally do not automatically become basis merely because money was spent.
Potential seller-financed sale
Estimated closing position
- Seller-financed amount
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- Scheduled interest
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- Gross contractual cash before expenses
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- Estimated contractual cash after selling expenses
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Amounts are received over time and depend on payments being made as agreed. Principal, excluded gain, nonexcluded gain and interest may have different tax treatment.
| Point | Payments received | Principal returned | Interest received | Remaining note |
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Do you need all your equity today?
Take all cash
Receive substantially all net equity at closing, then decide how to use or reinvest it.
Carry part of the sale
Receive a substantial down payment and keep part of the equity deployed in a contractual principal-and-interest note.
Compare both paths
If you do not need all the equity immediately, compare the cash and carry structures using your numbers.
Excluded gain, principal and interest are different.
Current IRS guidance generally allows qualifying taxpayers to exclude up to $250,000 of gain, or up to $500,000 for many qualifying married couples filing jointly, subject to ownership, use and other requirements. Filing status alone does not establish eligibility.
For an installment sale of a qualifying home, IRS guidance subtracts eligible excluded home-sale gain when determining gross profit. Seller financing does not turn already excluded gain into interest merely because principal is collected later. Interest is different and is generally taxable interest income.
IRS Publication 523: Selling Your Home · IRS Publication 537: Installment Sales
Keep your exits visible.
Hold the note, potentially sell all of it later, or potentially sell part of the payment stream. Liquidity usually requires accepting a discount from the remaining balance.