not quite. as a rental property, you should have taken depreciation on it. when you sell on the installment basis (form 6252) the first income that is taxed is section 1250 recapture depreciation the larger of allowed or allowable. after you have reported all 1250 recapture as income, then the balance gets taxed as long-term capital gain as collected. if you have not taken depreciation, you need the help of a tax pro.
with owner financing, you report as taxable income each year the interest income received and the portion of the principal collected that is income - 1250 recapture first then capital gain. there is no requirement to use the installment sales method but then the entire gain is taxable in the year of sale - still 1250 recapture and capital gain. each year you receive interest that's reported as income.
