capital gains tax

[Hobie1]

how can I avoid capital gains tax on early payoff of owner financed mortgage?

[Critter-3]

Have you been reporting the sale as an installment on form 6252 since the sale ?    Or did you report the entire sale in the year of sale and just report the interest in the following years. 

[Hobie1]

report principle received as installment sale each year

[Critter-3]

Then you will continue to report all the principal and interest received each year as you have in the past ... the principal goes on the 6252 and the interest on the Sch B.  On the 6252 the taxable portion will be computed even if they paid off the mortgage early. 

[Mike9241]

there's no way to avoid reporting the gain on this sale.

[Critter-3]

Of course not ...  eventually you have to pay the piper.  The 6252 delayed the payment until you got paid and  now you got paid.