Posted by GregN on December 18, 1999 at 09:49:08:
Rick,
That is my understanding, too. What would happen if he were to somehow get the property back (not like I’m planning on it, but he may ask). It couldn’t somehow be converted to an investment property b/c he gets the house back and is not living in it?
Greg
Contract for Deed and Homeowners $250k/$500k Tax Avoidance - Posted by GregN
Posted by GregN on December 17, 1999 at 08:35:02:
I’ve run across an owner who liked my idea of lease purchasing his home, but he’s worried what would happen if I don’t exercise my option during the multi-year lease term b/c he owns his $300k home free and clear (very nice!).
I said ‘I think there is a way we can get around that’ and mentioned a contract for deed scenario (the whole idea of him ‘financing’ the sale of the home scared him).
I just want to make sure that a contract for deed is considered an immediate sale by the IRS, allowing him to avoid the tax consequences of ‘accidentally’ becoming an investment property. Is this the case?
Are there any tax related pitfalls for the seller if I don’t come up with the funds at the end of the contract for deed ‘balloon’? (Just trying to have some answers to possible questions.)
Thanks for the help.
GregN
Read About Reverse Anuity Mortgages. - Posted by Harvey Carroll, Jr.
Posted by Harvey Carroll, Jr. on December 30, 1999 at 19:10:57:
It is where a home owner sales their property and gets a monthly payment. Usually, used for a retirement account. Much better that social security…
JR
Re: Contract for Deed and Homeowners $250k/$500k Tax Avoidance - Posted by Rick V
Posted by Rick V on December 17, 1999 at 21:21:13:
If this home qualifies for the exclusion for sale of his principal residence, then he can sell it to you free of capital gains tax on an installment contract. Selling on an installment contract would not convert a personal residence into an investment property.
Of course the interest income would still be taxable to him as he receives it each year.
Re: Contract for Deed and Homeowners $250k/$500k Tax Avoidance - Posted by Michael Morrongiello American Note
Posted by Michael Morrongiello American Note on December 17, 1999 at 12:35:06:
I’m no “bean counter” (Just kidding) or tax practitioner but My understading is that a sale of a property done using a contract for deed, land contract, agreement for deed, installment land contract, (take your pick)etc. would be treated as installment sale by the IRS and as such the tax reporting requirements would be similar. He will report the interest and principal on the “contract” as he receives them each year. As long as he is not consider a “dealer” in real estate , He will not pay tax on the full sales price gain. He will pay that tax over time as the payments are collected.
If you want to appease him then negotiate a balloon payment into the contract where you must pay him off by refinacing this contract for deed. If you don’t perform that may trigger a tax event. However I’m not sure how a repoesession by a seller who previously sold a property and financed it would be treated.
Michael Morrongiello
Operations Manager