A father sold a duplex to his daughter in 2019 for $540,000 on a 15-year note, and rent from the second unit covers her monthly payments. Under the installment method, each principal payment includes a tax-free return of basis and a taxable gain portion, fixed at closing as the gross profit percentage, while interest is taxed as ordinary income. Long-term gain can fall into the 0% bracket when the seller's taxable income stays low, with the 2026 limit at $49,450 for single filers and $98,900 for joint filers. Depreciation recapture must be recognized in the year of sale and is taxed before the 0% gain, and sales to an LLC the seller controls or a trust the seller benefits from generally lose installment deferral.
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- He Sold the Duplex to His Daughter for $540 , 000 and Took It Back in Fifteen Years of Monthly Checks . The Rent Pays the Note , and Most of Each Year Slice of Gain Has Landed in His 0 % Bracket Since 2019
In 2019 a father sold a duplex to his daughter for $540,000 on a 15-year note, acting as the lender and paying tax on the gain only as payments came in. Rent from the second unit covers the daughter's monthly payments, and because his other income is low, most of each year's gain can fall into the 0% long-term capital gains bracket. The article notes that a sale to an individual child qualifies for installment reporting, but a sale to an LLC or trust the seller controls or benefits from could trigger full gain recognition at once. Depreciation recapture is taxed first at up to 25%, so the 0% rate applies only after that layer is used up.
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