Is there a negative tax implication (higher tax paid) for selling my foreign property on a 50% + 8 year (no interest) payment schedule to a buyer vs outright sale?

[paxo78]

I am considering selling a property in Greece but am unclear what the tax requirements are for a property that has declined in value over the last several years and is sold at a 50% deposit followed by 8 years of payment by the buyer.

All other things being equal, will that schedule result in a higher tax payment (e.g. income tax vs capital gains) as opposed to an outright immediate sale?

[Critter-3]

You can report the sale all at once in the year of sale  or  as an installment sale over the years you receive the payments (form 6252).    If the sale is an overall LOSS  then you cannot use the 6252 installment option.  

How this will affect the taxes you pay totally depends on your other income so you will have to do some figuring both ways to determine the best option for you.  The sale will report the cap gain, depreciation recaptured (if any) and the interest collected.

[Mike9241]

no interest may present a problem. There is code section 7872 which deals with below-market loans. I.e. those loans where interest is below the market rate. 

(B)in the case of a term loan, the amount loaned exceeds the present value of all payments due under the loan.

(1)Present value
The present value of any payment shall be determined in the manner provided by regulations prescribed by the Secretary—
(A)as of the date of the loan, and
(B)by using a discount rate equal to the applicable Federal rate.

(2)Applicable Federal rate
(A)Term loans
In the case of any term loan, the applicable Federal rate shall be the applicable Federal rate in effect under section 1274(d) (as of the day on which the loan was made), compounded semiannually.

[paxo78]

Ah I see. Thank you. 

I see both Applicable Federal Rates(AFRS) for short/medium/long term, as well as adjusted AFRs on the IRS site. 

Do you know which one to use? 

Link here: https://www.irs.gov/pub/irs-drop/rr-23-09.pdf

Looking at May 2023 (latest as of this note)  a medium term, monthly AFR is either 3.51% or the adjusted is 2.68%. 

Which is the binding rate?  

[Mike9241]

Mid-term AFR rates are from obligations of maturities of more than three and up to nine years. 

[paxo78]

Right but there are two rates quoted. Do you know which is the rate that needs to be applied?