How do you sell a seller carryback so the seller does not say no?
Sellers refuse a carryback note because of four fears: default, tied-up cash, tax and the first lender. Each has a specific answer. Below are seven fixes and a one-page worksheet that turns the buyer's term sheet into a yes, a counter-offer or a no.
Hans Goldstein structures installment sales for sellers and works alongside their CPAs, attorneys and brokers. Call 213-414-2808 or send him the deal.
Why do sellers say no to a carryback?
Almost always for one of four reasons, and each has a specific answer:
- "What if they stop paying?" The fear of default. Answer it with security, not reassurance: a recorded deed of trust, a low combined loan-to-value, a guarantee, and a servicer who sends notices.
- "My money is tied up." Answer it by shrinking the note. The carryback only has to cover the gap, not the price.
- "The tax bill." Gain is reported as payments arrive under IRC §453. Depreciation recapture is the exception: it is taxed in the year of sale, so closing cash has to cover it.
- "The first lender won't allow it." Ask the lender before you negotiate, not after.
Seven things that turn a no into a yes
- Make the note the smallest piece of the deal. Cash at closing and the buyer's new loan carry most of the price. The note is only the gap.
- Take the rest of the price off the credit risk. In a structured installment sale the buyer pays in full at closing and an assignment company owes the seller scheduled payments funded by a fixed annuity from an insurer. That part is not a loan to the buyer. See how the two pieces fit together.
- Be second in line, with a cushion. Add up every loan ahead of you plus your note and compare to the appraised value. Set your own ceiling before the buyer proposes one.
- Charge at least the AFR. If stated interest is below the applicable federal rate for the note's term, part of the principal is recharacterized as interest. Check the current month's rate on the IRS site and date it on the worksheet.
- Keep the term short. A 3-5 year balloon with interest-only payments is easier to say yes to than a 20-year note, because the buyer refinances or sells before it comes due.
- Add a second source of repayment. A personal guarantee from the buyer's principals, or a second property as collateral.
- Use a servicer. A third party collects, sends late notices and tracks the senior loan, taxes and insurance, so you are not the one chasing the buyer.
The one-page seller worksheet
Fill this in with the buyer's term sheet in hand. If every row is comfortable, say yes. If one row is not, that row is your counter-offer. Print it, or send it to your CPA and attorney.
Seller Carryback Worksheet: would I say yes?
Goldstein & Co. · Educational worksheet, November 2026 · Seller: ______________________ Property: ______________________ Date: __________
| 1. The gap (numbers from the buyer's term sheet or escrow) | |
|---|---|
| Price I need (net, after costs) | $ |
| Buyer cash down + new first loan | $ |
| Gap = carryback I am being asked for | $ |
| Gap as % of priceSmaller is easier to say yes to. There is no universal rule; this is your line. | % |
| 2. What protects me if the buyer stops paying | |
| Lien position | ☐2nd deed of trust / mortgage ☐other: ________ |
| All debt ahead of me + my note, as % of appraised valueThe lower, the more room to recover after a default. | % |
| First lender allows a subordinate seller note? (get it in writing) | ☐Yes ☐No ☐Not asked yet |
| Personal guarantee / extra collateral | ☐Personal guarantee ☐Cross-collateral ☐None |
| Buyer credit, financials and reserves reviewed by me or my advisor | ☐Yes ☐No |
| Insurance, property tax and senior-lien default notices sent to me | ☐Yes ☐No |
| 3. Note terms | |
| Interest rate vs. the IRS applicable federal rate (AFR) for this termLook up the current month's AFR (IRS Revenue Ruling, published monthly) and write its date: ________ | Note rate ______% AFR ______% (note rate at or above AFR) |
| Term and payment type | ______ yrs ☐Interest-only ☐Amortizing ☐Balloon in year ____ |
| Late fee, default interest, cure period | |
| Who services the note (third-party servicer or escrow) | |
| 4. Tax check (with my CPA, not from this sheet) | |
| Depreciation recapture is taxed in the year of sale, even on installment payments | Estimated recapture: $__________ |
| Installment obligations over $5 million outstanding (§453A interest charge) | ☐Under ☐Over ☐Farm (exempt) ☐Ask CPA |
| Cash at closing covers the tax due in the year of sale | ☐Yes ☐No |
| 5. My answer | |
| ☐Yes, as written ☐Yes if the buyer adds: ______________________________ ☐No, price instead: $__________ Advisor (CPA / attorney) reviewed: ____________ Date: ________ | |
Educational only; not tax, legal or financial advice. Insurance and annuity products are offered through Goldstein & Co. LLC dba Goldstein Insurance Services; annuity guarantees are backed by the issuing insurer's claims-paying ability. Questions: Hans Goldstein, EA, NPN 20602398, 213-414-2808.
A standalone, print-ready copy lives at goldsteinco.net/seller-carryback-worksheet/.
What are the trade-offs?
A carryback is still a loan to the buyer, and a small structured piece does not remove the risk on the note. The note sits behind the first lender, so a senior foreclosure can wipe it out if the property sells below the senior debt. Interest on the note is ordinary income. Over $5 million of installment obligations outstanding can trigger the §453A interest charge unless an exception such as farm property applies; see §453A. A multi-owner LLC makes one installment decision for all members.
This is education, not tax or legal advice. Work with your CPA and attorney on your own facts.
Frequently asked
Q: How big should a seller carryback be? A: As small as closes the gap. The worksheet asks for the carryback as a percentage of price so you set your own ceiling before negotiating.
Q: Is a structured installment sale the same as seller financing? A: No. The buyer pays that part in full at closing and an assignment company pays the seller on a fixed schedule funded by an annuity. Only the carryback note is a loan to the buyer.
Q: What interest rate must the note carry? A: At least the applicable federal rate for its term, published monthly by the IRS, or part of the principal is treated as interest. Look up and date the current rate before you sign.
Q: Does the buyer's first lender have to approve the note? A: Usually the lender must allow a subordinate lien. Get that in writing before you agree to the price.
Q: Is depreciation recapture deferred by an installment sale? A: No. It is recognized in the year of sale, so closing cash needs to cover it. See depreciation recapture in an installment sale.