Re: Contract For… ? - Posted by Bill Gatten
Posted by Bill Gatten on December 14, 1998 at 14:31:25:
It doesn’t appear that you’re asking a question here; but that you are just making a statement: e.g., that I was incorrect in suggesting that land contracts within themselves don’t allow for tax deductions by the contractee. No offense taken, but forgive me for sticking my nose in again.
The fact of the matter is that the instrument you described (re. your own home) sounds like MORE than just a land contract. As I pointed out in my post, a land contract in conjunction with a contract “Of” sale (TODAY, versus a contingency), which does convey an equitable interest (“equity”) solves the problem of tax deduction. That’s the subject of the Belden case that I refer to so often in my posts). As I see it, the only problems that could be encountered in the transaction you describe, are that since you have taken an “equity interest,” the sale may be a taxable vent for your seller. Further, he (the seller) would have a tough time evicting you if you didn’t make your payments (judicial foreclosure, ejectment action and a quiet title action: since eviction is not an option). When you are the buyer in this kind of arrangement, despite any problems there could be, it works better than when you are the seller. Your personal arrangement is obviously not bad for you, and any potential risks that could be present are just taken for granted by those who do these kinds of transactions (I’ve done a few myself). Nonetheless, your house could (as remote as the possibility might seem to be) become the subject of certain legal or tax problems on the part of the seller, since he’s still on the loan and still on title (we had area director a few years back, who prior to coming with us, was involved in two separate law suits involving land contract transactions, wherein the sellers had been hit with massive tax liens (after create the contracts for sale), whereupon the properties became involved in the problems. They were unable to be disposed of during the law suits (due to lis pendens actions, I presume).
And, too-- good/bad/indifferent… possible/not possible… likely/not likely… the arrangement you described is a Due-on-Sale violation (I know, guys, no lender EVER calls a note because of a due-on-sale violation… unless they want to); but be that as it may, if you had it to do over again, why not consider a transaction that doesn?t not create an obstacle to eviction; does not jeopardize the property or title relative to either parties suits, judgement, BK’s, tax liens or martial disputes… or create a taxable sale today, much less a violationof the due-on-sale clause (?if such an animal did in fact exist)?
Honestly, it sounds like you have a nice arrangement and one your comfortable with. I’m sincerely glad you’re pleased with it. Seldom can any transaction wherein both parties are happy with each other and the deal itself be beaten.
The IRS test for a “qualified residence” deduction:
1 Do you make the payments?
2 It it your principal place of residence?
3 Do you have a contractual obligation to pay all deductible amounts?
4 Can you prove a full assump;tion of all risks and budens of ownership (possession)
5.Can you prove that you have an “equitable interest,” in the property, or that you hold a beneficiary interest in an estate or trust that has an equitable interest?
(i.e., IRC Sec. 163 - specifically 163(h)4(D))