Question 1

What is the gross profit ratio?

Accepted Answer

The fraction of gross profit to contract price — applied to each year's PRINCIPAL collection (never the interest) to find how much of that year's payment is taxable gain. It stays constant across the life of the note.

Question 2

Is the interest on a seller-financed note taxable?

Accepted Answer

Yes, in full, as ordinary income in the year received — it's never part of the spread gain and it's easy to forget when comparing a note's total nominal dollars against a cash offer.

Question 3

Can I use an installment sale on a flip?

Accepted Answer

No — dealer property (real estate held primarily for resale rather than investment or personal use) is disqualified from §453 installment reporting entirely; the full gain is taxed in the year of sale regardless of when you're paid.

Question 4

What if the buyer defaults on the note?

Accepted Answer

This calculator assumes the note is paid as scheduled. A default changes the tax picture (and obviously the cash picture) in ways this tool doesn't model — talk to a CPA about your specific facts if a default looks likely.

Would I keep more by carrying the note instead of taking cash?