Posted by Dave T on February 24, 2000 at 16:42:08:
For your example, imputed interest would not apply. Buyers and sellers may manipulate the tax consequences of an installment sale by varying the interest rate in seller financed transactions. By decreasing the interest rate and increasing the sales price of depreciable property, the seller decreases the interest income and increases capital gain.
The buyer normally will not care because all this does is decrease his interest expense and increase his depreciation expense.
The IRS has limited this tax plan with the imputed interest rules (Section 483) by imputing an interest rate in the sales contract unless a statutorially set minimum rate of interest is expressed in the agreement.