For most property owners, selling a property means triggering a significant tax event.
After years of building equity, improving the asset, and riding market appreciation, the idea of handing over a large portion of those gains to the IRS can feel disheartening. But that tax hit isn’t always inevitable.
That’s where seller financing comes in.
When structured properly, seller carry allows you to:
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Defer capital gains over multiple years
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Generate passive income secured by the asset you just sold
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And potentially walk away with a higher after-tax return than in a traditional sale
In today’s high-interest rate, credit-constrained market, it’s a strategy that can benefit both sides of the transaction—buyers and sellers alike.
What Is Seller Carry—And When Does It Make Sense?
If you’ve never explored it before, seller carry is simple in concept: the seller becomes the lender.
Instead of the buyer securing a loan from a bank, they make monthly payments directly to the seller—secured by a promissory note and deed of trust, just like a traditional mortgage.
This structure tends to work best when:
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The seller has little or no remaining debt on the property
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The seller is facing a large capital gains liability
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The owner doesn't need immediate liquidity, and prefers passive, tax-efficient income
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The buyer is well-qualified, but looking for flexible alternatives to traditional debt
Why Seller Carry Can Lead to Higher Net Proceeds
Most sellers focus on the headline sale price—but sophisticated sellers understand that how you structure a deal can have a greater impact than the number on the contract.
1. Predictable, Passive Income
Interest payments (typically 6–8%) create a reliable monthly income stream. These payments are secured by the asset you just sold and can be structured as interest-only with a balloon payoff—allowing you to preserve principal and control liquidity.
2. Pricing Leverage in a Constrained Market
Offering seller financing can expand your buyer pool and support a stronger purchase price. Buyers are often willing to pay a premium for favorable terms, especially when facing expensive or inaccessible bank debt.
3. Built-in Downside Protection
The note is recorded and secured by the property. If the buyer defaults, the seller has the legal right to foreclose—just like a bank. You maintain a senior position in the capital stack and a claim on the asset.
By deferring taxes and collecting interest, your total take-home can substantially surpass that of a conventional sale.
How Seller Carry Defers Capital Gains
One of the biggest advantages of seller carry is its impact on tax timing.
In a traditional sale, the full capital gains tax is triggered in the year of disposition—regardless of whether you reinvest the proceeds or not. This often results in an immediate tax bill that can erode a large portion of your equity.
Seller financing qualifies as an installment sale under IRS Code §453, allowing you to defer recognition of your capital gains. You're only taxed on the principal received each year—not the full gain in year one.
How it works:
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You receive a down payment at close, then monthly payments over time
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Each monthly payment is split between interest (taxed as ordinary income) and principal (taxed as capital gains)
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Because the bulk of the principal is deferred, so is the associated tax burden
Why this matters:
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Tax Deferral = Cash Flow Advantage. More of your money stays working for you in the near term.
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Bracket Management. Spreading gains over multiple years may help you avoid triggering a higher capital gains bracket or additional net investment income taxes.
It’s important to note: Depreciation recapture is still taxed in the year of sale. But even with that consideration, the seller carry structure remains one of the few tools that offers both liquidity preservation and tax efficiency.
Why Buyers Are Actively Seeking Seller Financing
For buyers, the advantages are just as clear—particularly in today’s rate environment.
Speed and Flexibility
Seller financing bypasses traditional underwriting timelines and provides flexibility in structuring terms—step-up interest rates, delayed principal payments, and interest-only periods all become possible.
Improved Deal Economics
Lower monthly debt service can improve cash-on-cash returns, boost DSCR, and allow investors to allocate capital toward renovations, lease-up strategies, or other value-add components.
Access to More Opportunities
Many qualified buyers have access to equity but are constrained by bank requirements. Seller carry expands deal flow to investors participating in 1031 exchanges, family offices, and experienced operators focused on flexibility and long-term upside.
Final Thought
Seller financing isn’t a workaround—it’s a strategic unlock.
For sellers, it offers a tax-advantaged path to exit actively managed assets without giving up income. For buyers, it unlocks transactions that wouldn’t be feasible under current debt conditions.
It won’t be the right fit for every scenario—but when it does make sense, the impact on both tax outcomes and long-term returns can be meaningful.
Seller financing isn’t the right move for everyone—but when it’s structured thoughtfully, it can dramatically shift the outcome of a sale.
If you’re exploring a sale, a 1031 exchange, or just want to understand what tools are available to you before making a decision, we’re here to help. No pressure, no pitch—just a conversation to assess whether this kind of strategy could make sense for you or your portfolio.
We’ll sit on the same side of the table and run the numbers with you.
*This article is for informational purposes only and does not constitute tax, legal, or financial advice. Please consult your CPA or tax advisor to understand how these strategies apply to your specific situation. *
