After-tax, time-value comparison of taking a cash offer today versus seller-financing your property.
| Taxable gain | — |
| Tax due now | — |
| Gross profit % | — |
| Monthly payment | — |
| Total after-tax cash (life of note) | — |
| Year | Principal | Interest | Taxable Gain | Total Tax | After-Tax CF | Discounted |
|---|
Using the default inputs: carry price $200,000, cash offer $184,000, basis $120,000, down payment $20,000, note at 7.5% for 360 months, 15% federal capital gains + 5% state (20% combined on gain), 24% ordinary rate on interest, 6% discount rate.
Gain = $184,000 − $120,000 = $64,000.
Tax = $64,000 × 20% = $12,800.
After-tax proceeds today = $184,000 − $12,800 = $171,200. Money received today needs no discounting, so the NPV of the cash path is simply $171,200.
Gross profit = $200,000 − $120,000 = $80,000. Gross profit percentage = $80,000 ÷ $200,000 = 40%. Forty cents of every principal dollar you collect is taxable capital gain.
The note: $200,000 − $20,000 down = $180,000 financed at 7.5% for 360 months. Monthly payment = 180,000 × 0.00625 ÷ (1 − 1.00625−360) = $1,258.59.
Year 0 (closing): you receive the $20,000 down payment. Taxable gain = $20,000 × 40% = $8,000. Tax = $8,000 × 20% = $1,600. After-tax cash flow = $18,400. Received today, so it enters the NPV undiscounted.
Year 1 (payments 1–12): twelve payments of $1,258.59 total $15,103.03. The amortization schedule splits that into $1,659.30 principal and $13,443.73 interest.
Repeat for all 30 years (principal grows and interest shrinks each year as the note amortizes), discount each year's after-tax cash flow, and sum:
Carry-the-note after-tax NPV = $186,039 vs. cash sale $171,200 — carrying the note wins by about $14,839 in today's dollars at a 6% discount rate, even though it takes 30 years to collect. Total undiscounted after-tax cash over the life of the note is roughly $391,549. Raise the discount rate (or the cash offer) and the gap narrows; at a high enough discount rate, cash today wins.
One step: gain = cash price − basis, tax = gain × (federal capital gains rate + state rate), and net proceeds = cash price − tax. Because the money arrives today, its NPV equals its face amount. If the gain is negative (a loss), this model simply applies zero tax rather than modeling loss deductions.
When you seller-finance and receive payments over multiple years, the IRS lets you report the gain on the installment method (Form 6252) instead of all at once. The key number is the gross profit percentage:
gross profit % = (sale price − basis) ÷ contract price
Each year, the principal you actually collect is split: principal × gross profit % is recognized capital gain (taxed here at your combined federal + state capital gains rate), and the rest is tax-free return of your basis. The interest portion of every payment is ordinary income, taxed at your ordinary rate in the year received.
The calculator builds the cash flows like this:
down × gross profit %) is taxed at capital gains rates.payment = UPB × i ÷ (1 − (1+i)−n) where i = annual rate ÷ 12 (UPB = unpaid principal balance). Each year's 12 payments are aggregated and split into principal and interest. Principal × gross profit % is taxed at capital gains rates; interest is taxed at the ordinary rate. After-tax cash flow = principal + interest − total tax. The final payment absorbs rounding so the ending balance is exactly $0.00.A 30-year note throws off far more total dollars than a cash sale, but dollars arriving in 2050 are not worth dollars today. NPV discounts each year's after-tax cash flow back to the present at your chosen rate:
NPV = CF₀ + Σ CFᵧ ÷ (1 + r)ʸ
where r is your annual discount rate — the return you could realistically earn if you had the cash now. A higher discount rate favors the cash sale; a lower one favors carrying the note. If r = 0, NPV is just the undiscounted total. Only displayed values are rounded; all intermediate math runs at full precision.
It depends on three things: the price gap (cash buyers usually pay less), taxes (carrying the note spreads capital gains over time and adds taxable interest income), and your discount rate (what you could earn on cash today). Owner financing often wins on raw dollars because of the interest income, but a cash sale wins more often when your discount rate is high, the cash offer is close to full price, or you need liquidity now. Run both paths through an after-tax NPV comparison — that is exactly what this calculator does.
Under IRS installment sale rules (reported on Form 6252), you do not pay tax on the entire gain in the year of sale. Instead, each year you multiply the principal you actually received that year by your gross profit percentage; that portion is taxed as capital gain. The interest portion of each payment is taxed separately as ordinary income in the year received. Depreciation recapture, by contrast, is generally taxed in full in the year of sale and is not deferred.
Gross profit percentage = (sale price − adjusted basis) ÷ contract price. It tells you what fraction of every principal dollar you collect is taxable gain. Example: sell for $200,000 with a $120,000 basis — gross profit is $80,000 and the gross profit percentage is 40%, so 40 cents of every principal dollar received (including the down payment) is taxed as capital gain.
No. That is the main tax advantage of seller financing. With installment sale treatment, gain is recognized proportionally as principal is collected, so a 30-year note spreads the capital gains tax over 30 years. Two caveats: depreciation recapture is generally due in the year of sale regardless, and you can elect out of installment treatment if paying all the tax up front is somehow better for you.
The big ones: (1) capital gains tax is deferred and spread over the life of the note instead of due all at once; (2) deferring tax keeps more money working for you earning interest; (3) spreading gain across years can keep you in lower brackets and below thresholds like the 20% capital gains rate or the net investment income tax. The trade-off is that note interest is taxed at ordinary income rates, which are usually higher than capital gains rates.
Cash buyers expect a discount for speed, certainty, and taking the property as-is — typically 5–15% below what a financed buyer would pay. Sellers offering financing can often charge full price (or more) because they are providing the credit the buyer cannot easily get elsewhere. This calculator defaults the cash offer to 92% of the carry price, but you should plug in your actual offers.
Net present value (NPV) converts every future after-tax dollar into today's dollars using your discount rate — the return you believe you could earn on money in hand. A dollar arriving in year 20 of a note is worth far less than a dollar today. Comparing the after-tax NPV of each path puts a lump sum today and a 30-year payment stream on the same footing so the comparison is apples to apples.