Re: Reducing capital gains - Posted by The Baze
Posted by The Baze on February 25, 2000 at 13:55:49:
First of all, a land contract is usually regarded as a sales transaction. Substance over form - what’s the purpose of the transaction? Who gets the rights and responsibilities of ownership? If the seller keeps paying the property taxes, and maintenance and such, then it could be treated as a rental transaction. That wouldn’t be bad, because, in all liklihood, the building is fully depreciated, so you wouldn’t be creating any more depreciation to “recapture”.
If, on the other hand, you, the buyer gets the rights and responsibilities of ownership, then the land contract is a sales transaction. There was an IRS private letter ruling in 1989 to that effect. He could probably take the section 121 exclusion for the portion of the building that has been his personal residence, after he recaptures the depreciation.
Also, new IRS regs say that on an installment sale, depreciation can be recaptured over the term of the sales agreement, as opposed to in the year of the sale, as had previously been the case. You might want to point that out to him. Hope this helps.