Posted by phil fernandez on March 21, 2000 at 20:45:43:
David,
Yes the IRS will imput their perception of a market interest rate if the rate on an owner financed mortgage is out of whack. Your example of 3% in an 8% world would get the IRS attention.
I still, as a buyer get sellers to finance me as a buyer for a rate of 8% down to 0% interest. The IRS imputed interest rate affects the seller. It would not affect me as a buyer.
Imputed Interest - Posted by David
Posted by David on March 21, 2000 at 17:29:25:
There were some posts below about simple interest only on a $445k mortgage, etc. etc,
If the interest rate is less than the IRS determines is fair market interest, including no interets, they the IRS can “impute interest” at the market rate. This rate can change monthly. Say its 6.5% this month and you either give or get a mortgage for 3%. Then the IRS will say that part of the sale price is really interest, because nobody would agree to give 3% interest in a 7% world. This was of great impact in the early 80’s when mortgages were 18% and sellers had to give 9 to 12% just to sell their properties.
Why the IRS is involved in this is because the tax rate of say 20% for capital gains is lower than 4 other tax rates on earned income, 28, 31, 36, and 39.6%.
hth
David