“We own a duplex in North Park free and clear. We’ve had it 17 years and we’re tired of managing and thinking about selling it. Do you recommend we carry a note so we don’t have to pay taxes?”
***ANSWER:
Instead of getting all your cash at close of escrow, carrying a note (called an “installment sale”) lets you put off paying taxes on most or all of your capital gain until you receive principal payments.
This allows you to earn interest on pre-tax instead of post-tax dollars. You’ll also get a higher rate than a bank will pay you, plus you might even get a small premium for your property.
Of course, when the buyer pays off the principal, you’ll have to pay all the capital gains taxes due.
See your tax professional for more advice on this subject.
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