Posted by JPiper on April 04, 2000 at 21:11:06:
Sounds like you understand the concept. Can?t explain ?why??.except to say that the IRS views the house as inventory?.and therefore upon sale the profit is taxed, whether you decided to collect it over time or upfront.
Your question reminds me of the old story about the guy who?s arm hurts when he moves it around. He carefully explains this to the doctor saying ?Doc, my arm hurts when I go like this?. The Doctor says, ?Then don?t go like this.?
If you don?t like paying the tax on a contract for deed sale, then don?t sell them that way. An alternative as an example is to lease/option the property. As an example, you could do a 2 year lease/option instead of a land contract with a 2 year balloon. You could arrange the payments so that they approximate that of the contract. You could credit the tenant for timely payments. And two years later when you sell (if the tenant exercises), you could do a 1031 exchange with the proceeds thereby deferring your tax.
Further, as you know, contract for deed could be more difficult to get back in the event of a default than the lease/option?.depends on state law of course.
Some people say that you can get more down with a contract?.and I won?t necessarily argue this. However, a two year lease/option should get more upfront than a one year in my opinion. And when you look at it after tax?.I?m not so sure there?s a disadvantage there.
As to having your corporation sell the note to another corporation?.. there may be ways to do this, but keep in mind that self-dealing is always an issue. And further, if you buy a discounted note, the discount has to be amortized (whether you receive it or not) and taxes paid annually.