Things You Need to Know When Doing Installment Sale Real Estate

Are you selling property? Have you ever considered an installment sale? Real estate sellers might wonder what the benefits of this type of sale are and how they work. This post covers the basics of real estate installment sales.

Knoxville Real Estate Market Watch

As of September 2023, homes in Knoxville took a median of 36 days to sell. However, trends and data can change over time. Contact the Knoxville Home Team for help buying and selling homes in Knoxville.

What is an Installment Sale Real Estate?

There are a few points to know about installment sales in real estate. First, it has to come in multiple payments rather than a lump sum. At least one payment must come in a different tax year from the sale. The seller must also record the sale using form 6252 from the IRS.

Now that you know the basics of installment sales, let’s look at the pros and cons.

Installment Sale Pros

• Increase Income: An installment sale can generate more income. Sellers can usually sell the home for a higher price. Along with that, there is also the potential for interest income on the loan.
• Capital Gains Tax: This method can also help with capital gains tax. You might maintain a lower tax rate by recognizing the proceeds in separate tax years. It can reduce the tax liability on the sale and allow the seller to keep more of the proceeds.
• More Buyers: Installment sales can also expand the pool of potential buyers. With a wider range of potential buyers, you might be able to sell the home faster or for a higher price.

Cons of Installment Sales

• More Risk: The seller may take on more risk with an installment sale. You’ll need to vet the buyer and assess their ability to make the payments over time. The contract should also include terms about default.
• Complexity: Installment sales are more complex than standard transactions. Instead of getting one payment, you need to manage the transaction over time. The contracts also tend to be more complex.
• Waiting: The seller must be willing to wait for the proceeds of the sale. While it can have advantages, you will still be waiting on a large portion of the price. However, there might be the potential to sell the debt after the transaction.

With the complexity and high financial stakes, sellers should seek advice before making an installment sale. A real estate attorney can help with contracts and provide advice to protect your interests.

Knoxville Home Team

Are you considering buying or selling a home in the Knoxville area? We’d love to help you! Please click here for our contact page, and we’ll reach out to you promptly.

Would you like to see more great info from the Knoxville Home Team? Please click here for our blog page.

Thanks for visiting!