Carry vs. Sell Comparison
Should you carry the note or sell outright for cash? Compare net proceeds from a cash sale against total income from carrying the note, including the time value of money. See exactly when carrying the note becomes more profitable.
Tax Implications of Carrying vs. Selling
When you sell a property outright, you owe capital gains tax on the entire gain in the year of sale. When you carry the note, you can use the installment sale method (IRS Section 453) to spread the gain over the life of the note, paying tax only as you receive principal payments. This can keep you in a lower bracket and defer a significant portion of the tax bill.
- Outright sale: $350K sale with $200K basis = $150K gain taxed at 15-20% capital gains = $22,500-$30,000 in tax year one
- Installment sale: same gain spread over 7-20 years — you pay tax only on the principal portion of each payment
- The installment method can reduce your effective tax rate by keeping annual recognized gain lower
- Depreciation recapture (Section 1250) is still taxed at up to 25% and cannot be deferred under installment rules
- Consult a CPA for your specific situation — the calculator models both scenarios so you can see the dollar difference
Time Value of Money: When Does Carrying Win?
Carrying a note always produces more total dollars than selling outright — you are earning interest on top of the sale price. But those dollars arrive over time, and a dollar in year 7 is worth less than a dollar today. The carry vs. sell comparison uses a discount rate (what you could earn investing the lump sum elsewhere) to calculate the present value of carrying the note. If the present value of carrying exceeds your net cash-sale proceeds, carrying wins.
- Cash sale nets $350,000 minus ~6% agent commissions minus taxes = roughly $296,000 in hand today
- Carrying the note produces $70K down + $189,976 payments + $233,500 balloon = $493,476 nominal total over 7 years
- At a 5% discount rate, the present value of carrying is approximately $343,200 — still higher than the $296K cash sale
- At a 10% discount rate, the present value drops to about $289,000 — now the cash sale wins
- The breakeven discount rate tells you: "If I can earn more than X% elsewhere, take the cash. Otherwise, carry the note."
Sample Output
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