Posted by Bill Gatten on May 13, 2000 at 12:07:52:
Russ,
Its no wonder you were confused by my post. In re-reading what I wrote in too much of a hurry, I said land “trust” instead of “contract,” and “warp” instead of “wrap.” They’ll turn me lose soon…so, don’t worry about paying the ransom…I’ll be fine (someday).
Bill
land contracts and claiming the interest deductions - Posted by Russ Sims
Posted by Russ Sims on May 10, 2000 at 23:45:15:
Suppose I buy a property “subject to” and sell on a land contract. How does my buyer claim the interest deduction on his/her income tax? I assume I need to provide a 1099 form, but since my buyer isn’t the title holder, will this fly with the IRS? Don’t quite understand how this is done… (read: don’t have a clue)Thanks! Russ
Re: land contracts and claiming the interest deductions - Posted by JPiper
Posted by JPiper on May 11, 2000 at 20:41:30:
Not exactly sure what the question is here…but I decided to disagree with Bill Gatten’s comment. My contract for deed gives the tax deduction for interest to the buyer, PROVIDED that it is within the IRS rules for them to take that deduction. At the end of the year I send a 1098 to them for the interest, and I report the interest on my own (or entities) tax return as income. My taxes are done by my CPA by the way, I don’t just make this up. The contract for deed was done by an attorney.
When the buyer enters into a contract for deed they have “equitable title”.
JPiper
Re: If I may be so bold - Posted by Bill Gatten
Posted by Bill Gatten on May 11, 2000 at 19:15:03:
Someone smarter’n me will no doubt answer this better. But in the meantime.
There is no tax deduction available to the resident in a Land Contract per se, as no legal and equitable title interest is being conveyed until the property is paid for (kind’a like a Lay Away Plan): unless, of course the contract (land sale contract, contract for deed or Warranty) is structured as a Contract FOR sale. Though doing so will typically obviate the necessity for, and benefits of, the land contract in the first place.
For you to set up the contract to benefit your resident in this manner means that you are pretty much divest ting your self of all the benefits of using the land trust for your own objectives. A Wrap or a Lease-Purchase would probably work better.
If I may be so bold?in addition to the (relatively risky) Warp and Lease Purchase, there are other (far superior) ways to accomplish your objectives here without conveying full title and ownership rights until you are ready.
Bill Gatten
Re: land contracts and claiming the interest deductions - Posted by Russ Sims
Posted by Russ Sims on May 12, 2000 at 11:14:17:
HI Jim: Sorry about the vagueness of my question: I’m concerned about the IRS questioning an interest deduction from a party that has no title to the property. I was wondering if “equitable interest” is enough to entitle the party to the deduction. You say yes, Gatten says no. Hmmm. Kind of still confused. 
Re: If I may be so bold - Posted by Russ Sims
Posted by Russ Sims on May 12, 2000 at 11:19:04:
Hi Bill: Thanks for the feedback, although I’m now more confused than ever, because as of JPipers posting, I now have 2 reputable sources at odds with eachother. Probably won’t be the last time:)
Re: land contracts and claiming the interest deductions - Posted by JPiper
Posted by JPiper on May 13, 2000 at 01:48:44:
Sorry you’re confused. Probably the best idea would be for you to ask your accountant. But keep this in mind…a contract for deed is definitely equitable title. This fact has been born out many times by Bill Gatten himself…when he points out the problems with removing a non-payor from a property bought with a contract for deed. In some states (not all) a contract for deed may need to be terminated by a foreclosure. If there were no equitable interest, why would this be so? And further, why would a contract for deed be treated like a mortgage in certain states if it isn’t one? I even have some contracts for deed in which the buyer has insurance and I am called the “mortgagee”.
I don’t know many people who claim that interest on a contract for deed can’t be written off by the buyer. But the best advice is to check it out with a qualified CPA.
JPiper