0% interest Owner Carry? - Posted by Jay(OR)

Posted by Wayne-NC on April 20, 2007 at 12:41:33:

But this is an IRS rule and it gets quite complicated (doesn’t it always). Why not take a deduction “at the end of the day” anyway?
In its’ most simple form, “When no interest or low interest is provided in an Installment Sale agreement, part of each payment will be treated as interest. The amount treated as interest is referred to as unstated or imputed interest. Imputed interest reduces the selling price and increases the seller’s interest income and the buyer’s interest expense.”
Another question comes to mind with zero interest money. Was the property purchased at or more than FMV? If so, there is the cost of funds to obtain the property. Otherwise given the time value of money, it can be viewed as an additional discount from an already good price.

0% interest Owner Carry? - Posted by Jay(OR)

Posted by Jay(OR) on April 19, 2007 at 24:43:42:

When you find a desperate seller willing to owner carry have any of you ever made an offer to them with a 0% interest rate?

Did you ever get that offer accepted?

Re: 0% interest Owner Carry? - Posted by ken

Posted by ken on April 19, 2007 at 08:06:12:

Yes i have a couple times.Those are worth keeping and renting since you can pay them off quickly.The trick is to offer them a certain amount of money with a monthly payment for how ever long it takes to pay it off at 0 % interest without telling them that there is no interest.

Imputed interest - Posted by Wayne-NC

Posted by Wayne-NC on April 19, 2007 at 09:11:39:

I believe the IRS will do so. “If an installment sale contract does not provide for adequate stated interest, part of the stated principal amount of the contract may be recharacterized as interest.” I knew of this from some time ago. The bottom line here is that you have a deduction and the seller has an income other than the possible capital gain. The IRS term now is “unstated interest”.

Re: Imputed interest - Posted by DaveD (WI)

Posted by DaveD (WI) on April 20, 2007 at 08:54:01:

If you have zero interest, you have nothing to deduct, as all of your payment is principal paydown. As well, there is no interest to impute on the sellers side, as there is no unearned income. Perhaps a cap gain, but that is another story.

At the end of the day, the IRS can do whatever it wants to (and it does). That shouldn’t stop any of us from reaching for the sweetest of deals: zero interst. Even zero for only a couple years is still mighty sweet.