Finance category
Mortgage, loan, investing, tax, and money calculators.
Installment Note Calculator
An installment sale (IRS §453) lets a seller spread the taxable gain from a real-estate sale across years as the buyer makes payments. Gross profit ÷ contract price = gross profit %. Each principal payment × GP% = gain recognized that year. This calculator runs the full note schedule.
Gross profit %
38.40%
Gross profit
$192,000
Monthly payment
$3,169
Note amount
$425,000
Year-1 taxable gain
$32,914
Year-1 interest income
$27,310
Total interest over life
$335,485
Total gain over life (should equal gross profit)
$192,000
How the math works
On $500K sale, $280K basis, $28K expenses: gross profit $192K, GP% 38.4%. Each $1 of principal → $0.384 taxable gain. Year-1 total principal (including $75K down + first 12 months): roughly $77K → year-1 gain $29.6K.
Plus interest income each year — ordinary income tax rate. Total gain recognition over 20 years equals the original $192K gross profit, spread across years based on principal payments. Smart for sellers in the 32-37% marginal bracket who want to stay under income thresholds.
How to Use
- Enter sale price, adjusted basis, selling expenses, and down payment.
- Enter note amount, interest rate, and term.
- See gross profit %, annual gain recognized, total interest income, and at-a-glance tax spread.
Frequently Asked Questions
When does §453 apply?
Sale of real property or non-dealer property where at least one payment comes after the tax year of sale. Not allowed for stocks/securities sold on established markets, or dealer property. Perfect for seller-financed real estate deals.
What's gross profit percentage?
Gross profit ÷ contract price. Gross profit = sale price − adjusted basis − selling expenses. GP% × each principal payment = gain recognized that year. Interest component is separate (ordinary income).
Can I recognize all gain up front?
Yes — 'elect out' of §453 by reporting full gain in year of sale on Schedule D. Useful if you're in a low-income year and want all cap-gain at low rates now, or if you expect rates to rise.
What's depreciation recapture treatment?
Section 1245 (personal property) recapture is fully taxed in the year of sale regardless of §453. Section 1250 (real property) recapture is spread with GP% if the property was recovery property; for most post-1981 real estate, it's 25% rate recapture recognized as payments arrive.
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