Capital Gains on Contract for Deed Sale - Posted by Sean

Posted by Dave T on October 24, 2004 at 13:59:22:

I am have not read the article you reference, but I am sure Mr. Bronchick is referring to sales that are treated as dealer dispositions.

In a dealer disposition all of the profit (whether received or not) from the sale is taxed as ordinary income in the year of the sale. The property is not eligible to participate in a 1031 exchange, depreciation expense not allowed, nor is installment sale tax treatment allowed.

On the flip side, IF the property you are selling is investment property rather than dealer realty, THEN for tax purposes, your sale on a Contract For Deed is treated as an installment sale.

Does this help?

Capital Gains on Contract for Deed Sale - Posted by Sean

Posted by Sean on September 21, 2004 at 05:26:08:

Dear Mr. Bronchick,

Regarding contract for deed sales; you stated in your article, “Lease Options vs. Contracts for Deed”:

> The entire balance paid on the contract will be due as a capital
> gain, which can be a huge tax liability if you have a low basis
> in the property.

Does this mean that if the seller has no equity in the property, the ENTIRE amount of the sale will be treated as capital gains? How is it possible to “wrap” an existing mortgage if this is the case?

Thank you in advance for any clarification you could make about this.