In 1995 I sold a piece of commercial property I acquired in 1976. I sold the property with a seller financed mortgage and used the gross profit formula to pay capital gains on the sale each year. In 2000, the buyer paid off the mortgage outstanding, leaving a residual capital gain on the sale. Are there any special capital gain preferences on the mortgage payoff of the residual capital gain?????It will be taxed just as the prior capital gains were which should have been long term capital gains. Other than the fact that it is long term capital gains, there is no preferencial treatment just because the buyer paid off early. The balance of your capital gains on the property will be taxable this year.
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