Tax Benefits to Seller of Seller Finance?

July 17, 2021

by a searcher in Mango Hill QLD 4509, Australia

When communicating with a seller about Seller finance how do you present it in a positive light and help them realize the benefits to them.

What are the main benefits to the seller of seller finance and what are the main tax benefits of doing so?

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Reply by a searcher
from Florida International University in Miami, FL, USA

Regan, regardless of the Capital Stack in the USA, because of the proposed increase of Capital Gains Tax, if someone was to sell their business instead of paying 20% they may potentially have to pay 40%. So the potential upside is to tell the seller to finance (Regardless of Percentage) and avoiding to pay the new tax rate. With a clause that states that if and when the tax rates comes back down. It can be revisited and pay the balance in a lump sum (You can find financing easily because by then in 1 to 4 yours there will be plenty of equity in the business). Love to connect and discuss further.

Reply by a professional
from New York University in New York, NY, USA

One major advantage from a tax perspective can be the deferral of recognition of income (generally no tax until the income is received), especially if it's a smaller deal it may lower their overall tax burden. Otherwise, they could earn some interest on the note that could be more than what they would get otherwise.

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