I am planning to sell my primary residence after 20 years living in that house to a buyer under bond for deed terms (or land contract). Bond for deed will expire in 36 months with balloon payment at the end of the term. 12% down payment. Since this is primary residence, this will qualify for tax exemption if capital gain is less than $500,000 for married couple, if sold immediately for a full price. What are the tax consequences if the home is sold under bond of deed contract (seller financing)? I will be paid off in 37 payments in installments. I will be getting interest plus principal for 36 months and at the end of 36 months, I will get all remaining payment in a lump sum. Do I need to pay income tax on the interest I receive and also tax on principal I receive? Shouldn't the payment I receive be tax exempt since I am selling my principal residence?
