Switching from lease option to subject to - Posted by Nikki

Posted by Stewart on September 07, 2003 at 21:08:51:

You don’t need to cash out to owe taxes. It is a matter of what you bought it for (plus improvements of course) and what are you getting for it now. If you bought for 100K and it is worth 400K now, but have 1st and 2nd equal to 400K, you have 300k gain (50k taxable if single). Doesn’t matter if you received any cash (unless you roll proceeds into new house that cost as much or more). She currently owns the property now, as it sounds so gains could be an issue. Anyone else know something different? Has been awhile since I have really been involved in taxes.

On the deductions, of course you want to deal with this upfront in the future, but if she really balks and it would be a good deal anyway, figure what she would save in taxes and work something out. One of the things you will want to do is have the address of record changed with the mortgage company so the 1099 goes to you.

Switching from lease option to subject to - Posted by Nikki

Posted by Nikki on September 07, 2003 at 15:48:12:


I am just learning about “subject 2” and “land trusts.” I have a lease option deal that I’ve had for a while. I needed the seller to switch the insurance policy to a landlord policy and this was going to cost her $200. She didn’t have the money so I agreed to cover the cost in exchange for her signing over the deed. She agreed but when we got to the table to do the paperwork she had some questions I couldn’t answer. Please tell me what you know about the following:

  • Once the deal is in the land trust and I have the deed, who gets to write off the mortgage interest - me or the seller? She doesn’t want to do the deal if she can’t write off the interest herself.

  • Do I get to write off the property tax that I am paying each month (currently wrapped up in the mortgage payment).

  • Will she have to pay capital gains tax once the property is sold. (She wouldn’t have to pay this now b/c it’s her residence and it’s under 250K but once she signs over the deed it won’t be owned by her).

  • Also -

  • Currently our arrangement is set up where the tenant pays the first $200 of maintenance and the seller pays anything over that. Once the deed is switched to my name does that mean she is releaved from this responsibility? The current tenants have reported wetness in the basement and, as it stands, there is a $500 deductable for the insurance. Will I now be responsible for paying this.

I told her I would get back to her by Monday (tomorrow) with answers. So you urgent response is so greatly appreciated.

Thanks in advance!

Re: Switching from lease option to subject to - Posted by Ed - Atlanta

Posted by Ed - Atlanta on September 07, 2003 at 16:12:59:


He/She who makes the mortgage payments gets the mortgage interest deduction.

Yes, you get to write off the taxes…YOU OWN THE PROPERTY!!

She is not cashing out any equity so there is no capital gains taxes. Besides she does not own the property.

As far as your arrangement with the tenant, it’s all how you write up the contract.