Seller Financing Calculator: The Payment and the Tax
Every other owner-financing calculator stops at the monthly payment. That is the easy half. The half that decides whether the deal is any good is what the IRS takes out of each payment, and there is one line item that is due in full the year you close, no matter how little cash you actually collected.
Put your numbers in. You get the amortization schedule, the year-by-year tax on every payment, and the comparison against just selling for cash.
What is the tax bill on your sale going to be?
Send me the sale price and rough basis. Within one business day I'll email you the actual number and the Seller's Guide to §453. If it doesn't fit your deal, I'll tell you that plainly.
No retainer · no obligation. Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
What every other seller financing calculator leaves out
Search "seller financing calculator" and you get amortization schedules. Payment, interest, balance, done. That math is real but it is the math a mortgage calculator does, and it answers a question you already half know the answer to.
The question that actually decides whether to carry paper is: of each payment that shows up, how much do I keep?
Under the installment method of §453, each principal dollar you receive is taxed using your gross profit percentage: your total gain divided by the contract price. Sell a $3,000,000 business with a $1,000,000 basis and your gross profit percentage is 66.7%. Every $100,000 of principal that arrives carries $66,700 of taxable gain. The interest arrives on top of that and is taxed as ordinary income, at rates up to 37% federal, not at capital-gains rates.
That is the normal case, and it is fine. Spreading a large gain across ten or twenty years genuinely keeps you out of the top bracket, out of the 20% capital-gains tier, and often under the net investment income tax threshold in most years. The calculator above shows you exactly how much that spreading is worth on your numbers.
The three things that wreck seller-financed deals
1. Depreciation recapture is not deferrable. This is the one that ambushes people. Under §453(i), depreciation recapture taxed as ordinary income (§1245 property, equipment, and amortized goodwill) is recognized in full in the year of sale, regardless of how little cash you received. Sell a business with $900,000 of amortized goodwill and equipment on a 20% down payment, and you can owe most of your down payment straight back to the IRS in April. Put your real depreciation figure into the calculator and watch the closing row.
2. §453A interest charge above $5,000,000. If the face amount of your installment obligations outstanding at year end exceeds $5,000,000, you owe the IRS an annual interest charge on the deferred tax for every year the note is outstanding. It is not a penalty, it is the price of the deferral, but almost nobody budgets for it. It does not apply to a principal residence sold under §121.
3. Interest below the AFR gets imputed. Price the note too cheaply to help the buyer and §483/§1274 will impute interest anyway, recharacterizing part of what you thought was principal (capital gain) into interest (ordinary income). Check the current applicable federal rate for the month you close before you agree to a rate.
Seller financing vs. a structured installment sale
Both get you §453 treatment. They differ on exactly one thing, and it is the thing that keeps sellers up at night.
If you are carrying paper mainly to spread the tax, and not because you want to be a lender, the structured version gets you the same deferral without the credit exposure. If you are carrying paper because the buyer cannot get financed, that is a different decision, and the calculator above at least tells you what the tax on it looks like.
Section 453, two ways: the risks of each
Section 453 (the installment method) is the tax rule: when you are paid over time, you report the gain as the payments arrive. There are two ways to be paid over time. The tax math is the same; the risks are not.
| Seller financing (carry-back note) | Structured installment sale | |
|---|---|---|
| Tax rule | §453 installment method | §453 installment method, if the structure holds |
| Legal footing | Settled: the textbook installment sale | A reasoned position; no IRS ruling specifically approves the assignment structure |
| Who owes you | The buyer | An assignment company, funded by a fixed annuity it owns from a highly rated life insurer |
| Security | Deed of trust on the property | None: you are an unsecured creditor of the assignment company |
| Buyer default | Possible: foreclosure, bankruptcy stay, repossession | None: the buyer is out at closing |
| Buyer pays off early | Possible: the remaining gain is taxed at once | Not possible |
| Cash early if you need it | Sell or pledge the note, and the deferred gain is taxed at once (§453B, §453A(d)) | No cash-out, loan, pledge or acceleration |
| Rate | Usually higher | Usually lower |
| Servicing | You | None |
| Commission | None | Built into the annuity pricing |
How seller financing loses the deferral
- The buyer refinances, sells or prepays: you get the cash and the tax in one year.
- You sell or borrow against the note: the gain is taxed as if collected.
- The buyer defaults: foreclosure, possibly a bankruptcy stay, and repossession rules (§1038). In California, a seller who carries back the price generally cannot get a deficiency judgment (Code Civ. Proc. §580b).
How a structured sale can lose it
- The IRS argues you were paid at closing and wins: all the deferred gain is taxed in year one while the money stays locked up.
- Your payments depend on the assignment company and the insurer behind its annuity. Not FDIC insured; don't count on guaranty association coverage.
- Nothing can be sped up, borrowed against or cashed out.
Which risks you would rather hold is your decision. Review it with your own CPA and attorney before closing.
Owner financing calculator: same math, same tax
Owner financing, seller financing, a seller carry back and a land contract are the same deal for tax purposes: an installment sale under IRC §453. This calculator works as an owner financing calculator. Enter the price, down payment, rate and term, and it shows the payment schedule and what the IRS takes from each payment. The interest you charge must be at least the applicable federal rate the IRS publishes each month, or part of the price is treated as interest (IRC §483 and §1274, as of October 8, 2026).
Want the whole picture before you agree to carry paper? The seller net sheet after tax starts from the price, takes out commission, closing costs and the loan payoff, and shows the cash sale next to a payout over time.
Frequently asked
Q: Is seller financing an installment sale? A: Yes. If you receive at least one payment after the tax year of the sale, §453 applies automatically. You do not elect into it. You have to elect out if you would rather pay all the tax up front, which occasionally makes sense if you have expiring losses or expect rates to rise.
Q: Can I defer the tax on the whole sale price? A: No. You defer the gain portion of each principal payment, at your gross profit percentage. Depreciation recapture under §1245 is never deferred. Interest is never deferred. Money you receive at closing is taxed in the year of closing.
Q: What happens if the buyer defaults after two years? A: You repossess the asset, and there is a separate gain or loss calculation on the repossession under §1038 (real property) or general principles. You do not simply get your old basis back. This is the single largest reason a seller-financed deal underperforms a structured one.
Q: Does seller financing work for a business sale, or only real estate? A: Both, but the recapture exposure is very different. Real estate carries §1250 depreciation, which is deferrable and taxed at 25% as it comes out. An operating business carries §1245 equipment and amortized goodwill, which is not deferrable at all. Same structure, wildly different closing-year tax bill.
Q: What is a reasonable interest rate on seller paper? A: Above the applicable federal rate at minimum, or the IRS imputes. In practice most seller notes price at a spread over what a bank would charge the buyer, because you are taking risk a bank declined. If you are pricing at the AFR to be generous, you are taking bank risk at below-bank returns.
Q: Can I sell the note later? A: You can, and it accelerates the remaining deferred gain into the year of sale, which usually defeats the purpose. Disposing of an installment obligation is a taxable event under §453B.
Q: Is this an owner financing calculator? A: Yes. Owner financing and seller financing are the same thing: the seller takes payments from the buyer instead of the full price at closing. The payment math and the tax are identical, so this calculator covers both.
Q: What does a seller net after tax on an owner-financed sale? A: The down payment and each principal payment, minus selling costs and any loan payoff, minus the tax on the gain as it is received, plus interest that is taxed as ordinary income. The seller net sheet after tax shows the cash-sale version side by side.
Find out what your sale is really going to cost you in tax, and what you can do about it
No retainer. On a funded structure, the insurer pays a one-time commission of about 4% of the amount structured to the brokerage firm that places it (Hans’s share is about 2.4%; no trail). It is built into the annuity pricing, not a separate fee.
Find out what your tax bill actually looks like before you sell, including the parts your CPA may not raise until the return is already being prepared.
Most people find out what they owe after the sale closes, when nothing can be changed. A short conversation now tells you the number, which layers apply to your situation, and which options are still open while the sale is still in front of you.
- What you will actually owe: federal, the 3.8% surtax, recapture and your state
- Which of those layers you can still do something about
- Whether spreading the sale changes the number in your case
Hans Goldstein · 213-414-2808 · Hans Goldstein: Tax & Exit Planning · This is an educational conversation, not tax advice. Bring your CPA in before you file.
Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
Run your specific numbers
The calculator runs your sale through real 2026 federal + state tax brackets and shows §453 savings vs lump sum side-by-side.
Run the calculator → 213-414-2808