Posted by Dave T on March 28, 2000 at 17:02:45:
The IRS considers a contract for deed an installment sale. The seller would report his interest income and return of principal exactly the same way as he would for an installment sale.
You ask how capital gains are paid when selling rental property and investment property on a CD. Unless you are defining investment rental property differently than the IRS, property held for the production of income (e.g., rental property) IS investment property. A cash basis seller who uses an installment sale to finance the sale of his investment property, reports his capital gains and interest income as it is received. The IRS even provides special tax forms to report the installment sale and the annual installments received each year. The forms assist the taxpayer in computing the capital gains realized each year and the amount of interest received.