Comments on: Tax Considerations of Owner Financing http://owner-financing.com Owner Financing Primer Sat, 10 Sep 2011 15:04:55 -0400 http://wordpress.org/?v=2.8.4 hourly 1 By: admin http://owner-financing.com/tax-considerations-of-owner-financing/comment-page-1#comment-1536 admin Sat, 10 Sep 2011 14:57:51 +0000 http://owner-financing.com/wp/?page_id=30#comment-1536 Good questions. Unfortunately they go well past my knowledge of tax law and accounting. That said, since you are selling at a loss the $20,000 is a return of capital, not a profit, so I don't believe it will be taxed. I think there must be a way to offset the interest income you receive from the buyer with the interest you pay to your lender. That would produce a loss for you. Losses on the sale of personal residences are not deductible. I don't know if that means on the capital gains portion only, or if it would include your extra interest expense. Good CPA questions :) Good questions. Unfortunately they go well past my knowledge of tax law and accounting. That said, since you are selling at a loss the $20,000 is a return of capital, not a profit, so I don’t believe it will be taxed. I think there must be a way to offset the interest income you receive from the buyer with the interest you pay to your lender. That would produce a loss for you.

Losses on the sale of personal residences are not deductible. I don’t know if that means on the capital gains portion only, or if it would include your extra interest expense. Good CPA questions :)

]]> By: Jon http://owner-financing.com/tax-considerations-of-owner-financing/comment-page-1#comment-1525 Jon Thu, 08 Sep 2011 16:22:15 +0000 http://owner-financing.com/wp/?page_id=30#comment-1525 I have an offer for a seller financed option to sell my home at a $1,000 loss. The selling price of the home would be $155,000. The buyer is offering a $20,000 downpayment and a 3 year finance option on the remaining $135,000. With this difference, my loan will be greater than what I am being paid monthly by the buyer. My three questions are do I have to pay taxes on the $20,000 down payment? Would I have to pay taxes on the monthly interest I receive from the buyer even though it is less than what I am paying out? Lastly, can I write off my interest rates on my personal taxes? I have an offer for a seller financed option to sell my home at a $1,000 loss. The selling price of the home would be $155,000. The buyer is offering a $20,000 downpayment and a 3 year finance option on the remaining $135,000. With this difference, my loan will be greater than what I am being paid monthly by the buyer. My three questions are do I have to pay taxes on the $20,000 down payment? Would I have to pay taxes on the monthly interest I receive from the buyer even though it is less than what I am paying out? Lastly, can I write off my interest rates on my personal taxes?

]]> By: admin http://owner-financing.com/tax-considerations-of-owner-financing/comment-page-1#comment-1009 admin Fri, 22 Apr 2011 15:50:12 +0000 http://owner-financing.com/wp/?page_id=30#comment-1009 You can't deduct repairs or depreciation like a landlord would. You can deduct your own interest expenses. For example lets say the interest and principle you pay on the existing loan is $1,000 and that $200 of that is principle and $800 is interest. The buyer pays you $1,100 and of that $900 is interest. You would subtract $900-800 and pay taxes on $100 per month of net interest income. You can’t deduct repairs or depreciation like a landlord would. You can deduct your own interest expenses. For example lets say the interest and principle you pay on the existing loan is $1,000 and that $200 of that is principle and $800 is interest. The buyer pays you $1,100 and of that $900 is interest. You would subtract $900-800 and pay taxes on $100 per month of net interest income.

]]> By: ST http://owner-financing.com/tax-considerations-of-owner-financing/comment-page-1#comment-978 ST Sat, 09 Apr 2011 14:43:58 +0000 http://owner-financing.com/wp/?page_id=30#comment-978 Help! We sold our home for the same price we paid (no gain) and are financing the buyers mortgage for 3 years. We only get $100 more per month than the amount on our own mortgage for the home (FHA so don't have to pay the balance upon sale). Can we take any deductions similar to what a landlord would take such as depreciation or do we really have to claim the entire amount of interest as income with nothing to offset the tax liability? If the latter is the case, why on earth didn't my lawyer tell me I was going to be paying them to live in my home? Help! We sold our home for the same price we paid (no gain) and are financing the buyers mortgage for 3 years. We only get $100 more per month than the amount on our own mortgage for the home (FHA so don’t have to pay the balance upon sale). Can we take any deductions similar to what a landlord would take such as depreciation or do we really have to claim the entire amount of interest as income with nothing to offset the tax liability? If the latter is the case, why on earth didn’t my lawyer tell me I was going to be paying them to live in my home?

]]> By: admin http://owner-financing.com/tax-considerations-of-owner-financing/comment-page-1#comment-921 admin Tue, 18 May 2010 17:33:07 +0000 http://owner-financing.com/wp/?page_id=30#comment-921 If only that were true! When you sell with owner financing you have the choice of recognizing the gain and paying all the taxes in the year of the sale, or electing to do an installment sale. If you do an installment sale you pay taxes on the income as you receive it. You will need an amortization table that shows the interest portion of each payment. That is taxed as interest income. The principle payment is divided into two parts; return of capital and capital gain. You pay taxes on the capital gain as it is received. For example, lets say you sold a house for $100,000 of which your profit is $20,000. (Remember that profit is the sale price less your basis, not what you still owe. Loan over basis may be another separate ugly issue in that case.) Lets also say that the monthly payment is $1,000 of which $700 is interest (keep in mind this changes each month so you need your amortization table to get the correct amounts.) Under the installment method you report the $700 as mortgage interest income. Your profit was $20,000/100,000 or twenty percent. So 20% or $60 of the $300 applied to principle was profit and should be reported as a capital gain. The other $240 was a return of principle, and therefore not taxable. If you have a large profit an installment sale spreads the income over a long time period. If you have, or can create, other capital losses (Stock losses for example) you may be able to net the gains and losses and benefit from not taking the installment sale. As you can see, there are lots of choices. The correct ones depend of how well you can predict your future. If only that were true!

When you sell with owner financing you have the choice of recognizing the gain and paying all the taxes in the year of the sale, or electing to do an installment sale.

If you do an installment sale you pay taxes on the income as you receive it. You will need an amortization table that shows the interest portion of each payment. That is taxed as interest income. The principle payment is divided into two parts; return of capital and capital gain. You pay taxes on the capital gain as it is received.

For example, lets say you sold a house for $100,000 of which your profit is $20,000. (Remember that profit is the sale price less your basis, not what you still owe. Loan over basis may be another separate ugly issue in that case.) Lets also say that the monthly payment is $1,000 of which $700 is interest (keep in mind this changes each month so you need your amortization table to get the correct amounts.)

Under the installment method you report the $700 as mortgage interest income. Your profit was $20,000/100,000 or twenty percent. So 20% or $60 of the $300 applied to principle was profit and should be reported as a capital gain. The other $240 was a return of principle, and therefore not taxable.

If you have a large profit an installment sale spreads the income over a long time period. If you have, or can create, other capital losses (Stock losses for example) you may be able to net the gains and losses and benefit from not taking the installment sale. As you can see, there are lots of choices. The correct ones depend of how well you can predict your future.

]]> By: Stephanie http://owner-financing.com/tax-considerations-of-owner-financing/comment-page-1#comment-920 Stephanie Tue, 18 May 2010 17:01:54 +0000 http://owner-financing.com/wp/?page_id=30#comment-920 Am I correct that there is no tax on what would otherwise be a capital gain if I carry a note for the full purchase price? How do I report the sale on my income tax -- just as a mortgage? Am I correct that there is no tax on what would otherwise be a capital gain if I carry a note for the full purchase price? How do I report the sale on my income tax — just as a mortgage?

]]> By: admin http://owner-financing.com/tax-considerations-of-owner-financing/comment-page-1#comment-269 admin Fri, 23 Oct 2009 19:38:14 +0000 http://owner-financing.com/wp/?page_id=30#comment-269 You might check this link http://www.irs.gov/pub/irs-drop/rr-09-35.pdf You might check this link

http://www.irs.gov/pub/irs-drop/rr-09-35.pdf

]]> By: Tom http://owner-financing.com/tax-considerations-of-owner-financing/comment-page-1#comment-268 Tom Fri, 23 Oct 2009 18:06:43 +0000 http://owner-financing.com/wp/?page_id=30#comment-268 When I last attempted to sell my rental house (several years ago) with owner financing, I was told that there is a legal minimum interest that I can charge. Where can I find this percentage? When I last attempted to sell my rental house (several years ago) with owner financing, I was told that there is a legal minimum interest that I can charge. Where can I find this percentage?

]]> By: admin http://owner-financing.com/tax-considerations-of-owner-financing/comment-page-1#comment-100 admin Mon, 10 Aug 2009 17:18:11 +0000 http://owner-financing.com/wp/?page_id=30#comment-100 Not being a lawyer I can't speak to the legal implications. However, if there are multiple heirs, I can't imagine a situation more likely to create a family fight. Someone is certain to need their cash immediately and/or do something dumb financially, go bankrupt, etc. My thought would be to get it out of the estate as quickly as possible and, if appropriate, move it into a family limited partnership or some other entity better structured for dealing with ongoing issues and do any financing from there. Not being a lawyer I can’t speak to the legal implications. However, if there are multiple heirs, I can’t imagine a situation more likely to create a family fight. Someone is certain to need their cash immediately and/or do something dumb financially, go bankrupt, etc.

My thought would be to get it out of the estate as quickly as possible and, if appropriate, move it into a family limited partnership or some other entity better structured for dealing with ongoing issues and do any financing from there.

]]> By: Willia http://owner-financing.com/tax-considerations-of-owner-financing/comment-page-1#comment-99 Willia Mon, 10 Aug 2009 15:53:22 +0000 http://owner-financing.com/wp/?page_id=30#comment-99 Is seller financing an option when the property is part of an estate? Can the seller pay the estate and then the executor send out payments to the recipients and or bill collectors? Is seller financing an option when the property is part of an estate? Can the seller pay the estate and then the executor send out payments to the recipients and or bill collectors?

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