Selling Your Home as an Installment Sale

What Is An Installment Sale?

According to the Internal Revenue Service (IRS), an Installment Sale is the sale of an asset where the seller receives at least one payment after the tax year of the sale. Rather than receiving the total contract price for an asset at one time, the seller spreads the payment of the property over time using a specific Installment Sale documentation such as a deed of trust or mortgage (depending on the state) and note that specifies the terms of the repayment. These types of transactions have been done for many years. In fact, the IRS has a detailed publication that explains all of the tax benefits. Click through to the IRS website to view IRS Publication 537. Many people refer to Installment Sales as selling on terms, seller financing or owner financing.

How An Installment Sale Works

With an Installment Sale, the buyer makes payments to the seller over time, rather than handing over a lump sum at closing. The buyer's obligation to make future payments to the seller will be spelled out in a deed of trust or mortgage and note according to the sales contract between the buyer and seller, as any other bank or mortgage company would require. This way the buyer's promise to pay the seller is secured by the property. In other words, if the buyer does not pay, the seller can foreclose and get the property back and sell it again.

Benefits Of An Installment Sale

• An Installment Sale is best used when selling a property with no mortgage. In this case, the seller would like to sell their property fast, at a higher sales price, as opposed to discounting the sale price for an all cash offer.
• The Installment Sale can create a steady stream of income over a number of years for the seller and allow the taxable gain on the sale to be spread out over those years instead of immediately upon the sale.

An installment sale isn't right for every situation — and we'll tell you honestly if a straight cash offer makes more sense for you. But if your property is paid off (or close to it) and you'd like monthly income instead of one lump sum, it's an option most buyers will never offer you. We buy houses on terms all over South Carolina, and we'll walk through the numbers with you — no pressure, no obligation.