How to use the seller financing calculator
Start with the price and down payment you’re discussing, then try different rates and balloon dates to see how each one changes your income and your exposure.
- Sale price: the full agreed price of the property.
- Down payment: the share of the price the buyer pays in cash at closing. The rest is the note you carry.
- Interest rate: the annual rate on the note. It should not be below the IRS applicable federal rate.
- Amortization: the number of years used to calculate the payment. A longer amortization lowers the payment and leaves a larger balloon.
- Balloon: the year the remaining balance comes due. Set it equal to the amortization for a fully paid-off note.
- Interest-only: check this if the buyer pays only interest until the balloon.
- Adjusted basis plus selling costs (optional): your purchase price plus improvements, minus depreciation, plus the costs of the sale. It is used to estimate your taxable gain.
What the results mean
The calculator returns these numbers:
- Note amount: the price minus the down payment, which is what you are lending.
- Monthly payment: principal and interest on a fixed-rate note, or interest alone if interest-only is checked.
- First-year interest and principal: how the first twelve payments split between your income and repayment of the loan.
- Balloon payment: the balance still owed on the balloon date.
- Total interest earned: all interest you collect before the balloon is paid.
- Total received: the down payment, every payment and the balloon added together, compared with an all-cash sale.
- Gross profit percentage: your gain divided by the contract price. Under the installment method, this share of every dollar of principal is taxable gain.
- Gain reported in the year of sale: the down payment plus first-year principal, times the gross profit percentage.
The formulas behind it
The payment uses the same fixed-rate loan formula a bank uses. The tax figures follow the installment method described in IRS Publication 537.
| Result | Formula |
|---|---|
| Note amount | Sale price × (1 − down payment %) |
| Monthly payment | Note × r ÷ (1 − (1 + r)^−n), where r is the monthly rate and n the amortization months |
| Balloon payment | Balance remaining after the balloon year’s last payment |
| Total received | Down payment + all payments + balloon |
| Gross profit | Sale price − (adjusted basis + selling costs) |
| Gross profit percentage | Gross profit ÷ contract price (the sale price when no debt is assumed) |
| Gain in year of sale | (Down payment + first-year principal) × gross profit percentage |
Worked example
With the default inputs, a $2,000,000 building sells with 25% down, and the seller carries a $1,500,000 note at 7%, amortized over 25 years with a balloon at year 7. The monthly payment is $10,601.69. Over seven years the seller earns about $690,561 of interest, is owed a balloon of about $1,300,020 and collects about $2,690,561 in all.
If the seller’s adjusted basis plus selling costs is $1,000,000, gross profit is $1,000,000 and the gross profit percentage is 50%. In the year of sale the seller collects $500,000 down and $22,947 of principal, so about $261,474 of gain is reported that year. The rest is reported as principal comes in, mostly in the balloon year.
Setting the interest rate on a seller-financed note
The rate is negotiated, but the IRS sets a floor. If a seller-financed note charges less than the applicable federal rate, Sections 483 and 1274 treat part of the principal as interest, which changes the tax for both you and the buyer. The IRS publishes the rates monthly, and Publication 537 explains which test rate applies to your note.
Above that floor, the rate reflects the risk you’re taking. A buyer with a large down payment and a strong track record can expect a lower rate than a buyer stretching to close. Some states also cap rates under usury laws, so check the rules where the property is located.
What this calculator leaves out
The estimate assumes a fixed rate, monthly payments and no prepayment. It doesn’t model depreciation recapture taxed in the year of sale, the interest charge on installment notes over $5 million, state taxes, or the chance that the buyer defaults or pays off early. Our installment sale guide covers those rules, and your CPA can run your exact numbers.
Selling? Spread the tax with seller-carry terms
If a large tax bill is what is keeping you from selling, an installment sale may help. When you carry part of the price as a note, the gain is generally reported as you receive payments instead of all in the year of sale. Some parts of the gain, such as certain depreciation recapture, can still be due up front, so run the numbers with your CPA first.
Skyline Capital Investments buys apartment buildings with five or more units and can offer seller-carry terms, or a delayed closing that fits your 1031 timeline. Send the address and unit count and we typically respond within 48 hours. How seller financing works · How an installment sale is taxed.
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