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December 21, 2025
5 Tax Reporting Steps for Seller Financing
Seller financing requires careful tax reporting because the IRS treats it as an installment sale, spreading taxes over time as payments are received. Each payment must be properly allocated between interest income (ordinary income), return of basis (non-taxable), and taxable gain, with sellers and buyers filing the correct forms annually. Staying organized with documentation and compliant throughout the note term helps avoid penalties and preserves the tax benefits of seller financing.
