What Is a Seller-Carry / Seller-Finance Note?
In a seller-financing transaction, the buyer and seller agree on a sale price for the property. Instead of relying on bank financing or traditional lenders, the seller provides financing for a portion of the purchase.
The terms Seller-Carry and Seller-Finance are used interchangeably.
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The buyer signs a promissory note outlining the repayment terms, including the loan amount, interest rate, maturity date, amortization schedule, and any applicable balloon payments.
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The seller secures repayment with a deed of trust or mortgage loan, creating a lien on the property.
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The buyer receives the deed, moves in, and makes monthly payments directly to the seller, often with interest.
This is how seller financing works: the seller essentially steps into the role of lender.
CPA's Need to Know
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The seller becomes a creditor and holds a long-term asset (the note).
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The buyer owns the property and makes monthly payments per the note terms.
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The note is typically classified as an installment receivable on the balance sheet.
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Present value considerations may apply for GAAP purposes.
Federal Tax Implications for the Seller
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By default, the gain is reported using the installment method, which spreads the gain recognition over the life of the note.
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Each payment received is treated as:
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Principal (basis recovery + gain), and
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Interest income (ordinary income under IRC §61).
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You calculate the gross profit percentage and apply it to principal received each year to determine the taxable gain.
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Installment Sale Reporting (IRC §453)
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The interest portion of each payment is reported as ordinary income (Form 1040, Schedule B or appropriate business schedule).
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Interest must be stated in the note to avoid imputed interest under IRC §§1274 or 483.
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The applicable federal rate (AFR) sets the minimum required interest rate to avoid OID issues.
2. Interest Income
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If the property was depreciable (e.g., rental or commercial), any Section 1250 or 1245 recapture is taxed in the year of sale, regardless of payment timing.
3. Depreciation Recapture
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If the seller assigns the note to a third party (e.g., an investor), it triggers possible recognition of deferred gain under IRC §453B (disposition of installment obligations).
4. Deferred Gain
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Form 6252 - Used to report installment sale income each year.
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Form 1098 - If the seller receives $600+ in interest annually, they may be required to issue Form 1098 to the buyer (depending on business status and intent).
5. Reporting Requirements
Texas-Specific Considerations
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Texas uses a deed of trust, not a traditional mortgage.
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Sellers who create more than 5 private mortgages in a 12-month period may require licensing under Texas SAFE Act rules unless an exemption applies.
We provide CPAs with mortgage note options that go beyond compliance:
Liquidity Strategies
Help clients convert long-term receivables into lump-sum cash
Tax Planning Alignment
Coordinate note sales with capital gains timing, estate planning, and succession strategies
Professional Support
We partner with CPAs, not replace them—strengthening your client relationships
Trusted Buyer Network
Access pre-vetted private mortgage note buyers and structured transactions
Summary of Key Tax Elements
Principal Received
Capital gain (installment method)
Form 6252
Interest Income
Ordinary income
Schedule B / 1098
Depreciation Recapture
Ordinary income (on sale, not payments)
Form 4797
Promissory Note
Installment receivable
Balance sheet (if applicable)
ELEMENT
Tax Treatment
Reporting Form
Our Commitment to CPAs
At Secured Capital Resources, our role is to provide seller-financing note solutions that enhance your practice. From installment reporting to exit strategies for clients who prefer a lump sum, we help you advise with confidence. Together, we create clarity, liquidity, and opportunity for your clients.
Schedule a private consultation to explore how we support CPAs with mortgage note sales, tax planning, and professional referral solutions.
Mortgage Note Solutions for CPAs
Helping You Guide Clients with Seller-Financed & Seller-Carry Notes
As a CPA, you may have clients who hold seller-carry or seller-financing mortgage notes—long-term receivables that create both opportunities and tax considerations. Understanding how these notes work and when to consider a mortgage note sale or assignment is essential to providing well-rounded financial advice.