Taxes on seller financed mortages... - Posted by Jerry Mathis

Posted by David on April 11, 2000 at 20:55:31:

The statement only applies to C corporations not S or LLC!

Taxes on seller financed mortages… - Posted by Jerry Mathis

Posted by Jerry Mathis on April 07, 2000 at 13:23:45:

Everyone knows that mortgage interest is tax deductable. In the case of a seller financed mortgage, is the seller totally responsible for providing interest information to the buyer every year same as a regular lending institution does? Who keeps track of the amortization table? Where can I find a calculator or software package to do this?

A few more questions…

Are notes for mobile home sales treated like mortgages and subject to the same taxes as referred to above? Do these notes have to be recorded or are they all private transactions? Reading the posts by Lonnie Scruggs and others here on this great site never really say…do coroporations need to be set up for mobile home transactions since you are not holding the homes?

Sorry to be long winded, but man do I get confused sometimes. I can see the great opportunities here, but I want to arm myself with all the knowledge possible…



Re: Taxes on seller financed mortages… - Posted by Tim (Atlanta)

Posted by Tim (Atlanta) on April 07, 2000 at 14:43:20:

Seller financed mortgages are tax deductible for the buyer just like any other type of mortgage. The mortgage lender (seller) should provide the borrower (buyer) with a statement at the end of the year specifying the amount of interest paid. This rarely happens. The lender (seller) should also list the interest as income on their income tax. There are several packages to keep track of the payments and amortization schedule. Quicken does a good job, but I am sure there are many others.

The notes on mobile homes are treated the same as any other mortgage created. This is where the tax bite can get you on mobile homes. Suppose you buy a mobile home for $2000 and sell for $5000. For that tax year, you must pay tax on the profit of the sale, (5000 - 2000) = $3000. You must also pay tax on the interest that the note payor paid to you on the note. The notes do not have to be recorded, but you should list the note in the liens section on the title for the MH.

You could set up a corporation to buy and sell the MHs. Many people do this. It helps the tax situation, in that if you create a C corp, the interest and profits are taxed at 15% up to the limit of $50,000. The 15% is normally lower than your personal tax rate. Note that you can’t just use the funds in the corporation for your normal living expenses. The corp funds must be used for corp purposes, or you can get taxed on the money that you take out of the corp.

Hope this helps.

Re: Taxes on seller financed mortages… - Posted by Zee, PA

Posted by Zee, PA on April 11, 2000 at 01:01:34:

“you can’t use the money from the corporation for living expenses…” (otherwise you’re taxed again.)

OK. So, How does one make a living at REI?

Re: Taxes on seller financed mortages… - Posted by Tim (Atlanta)

Posted by Tim (Atlanta) on April 12, 2000 at 06:38:01:

I believe we are talking about a C type corporation. If you take money out of a C corp by declaring a dividend, that money is still taxed as profits at the corporate level and taxed as income on the personal level. If you want to use the profits from your REI to live on, do not buy the assets with your C corporation. Use an S corp or a LLC. These types of companies allow you to take income from them and pay only personal income tax, not corporate and personal income tax. An S type corporation will allow you to take most of the ordinary type of deductions for expenses that a C corp would be able to take. But an S corp cannot retain earnings. That means that any profits made by an S corp go directly to the personal return of the owners of that corporation. A C corp can retain earnings, and those profits are taxed at the lower 15% rate. So in conclusion, if you don’t need your REI profits for living expenses, buy them through the C corp, and leave the profits in the C corp. If you need the REI profits for living expenses, buy them through a S corp or LLC.

Hope this helps.