When you provide the financing for a sale such as this, you are able to use what is called the Installment Sale in order to report the sale for income tax purposes.
What that means is that you basically pay the capital gains tax as you collect the principal payments on the sale.
Now you mentioned that the capital gain was $130,000., but it appears that the actual total gain is $120,000. (Selling price $250,000. less purchase price $130,000. = $120,000. gain).
Also, the gain may be further reduced by any expenses of sale, commissions, deed stamps,
closing fees, etc.)
So, for the moment, based upon your other income and $120,000. of gain, you will pay 20% of each principal payment in federal income taxes and approximately 9% in CA income taxes. Now, since you would be using the Installment Sale method, a good portion of the federal taxes will be reduced to 15%, because the amount of the principal collected after the year of sale will be less and therefore you will remain in a lower tax bracket.
Also, you will of course pay income taxes on the interest income that you collect each year.
For the first year, the year of sale, you should plan on a total of approximately 25% of the down payment in Federal & CA income taxes or $3,750. (FED) $2,500.(CA) Also, depending upon when you actually make the sale, you could have as much as $11,250. in interest income in the first year following the sale. You would pay as much as $3,300. in income taxes on that interest.
Naturally, these figures may be spread over 2 tax years depending upon when you actually close on the sale.
This should give you a reasonable estimate as to what you may expect in income taxes on the transaction.