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Capital gains taxes on seller finance home sale?
Posted on 7/8/24 at 12:51 pm
Posted on 7/8/24 at 12:51 pm
I am selling a home seller finance. It's a manufactured home so a traditional mortgage was too challenging for many buyers. I am unsure on this component, though: capital gains.
I bought originally for $110k and selling for $150k...net +$40k. I only am getting 20% of their down payment and pay about $9k in closing fees. So, my take home today is about $20k. They are financing $122k at 7% for seven years.
I Understand I pay cap gains - done it several times...but, because I don't receive the money until the contract ends, when is it due?
I bought originally for $110k and selling for $150k...net +$40k. I only am getting 20% of their down payment and pay about $9k in closing fees. So, my take home today is about $20k. They are financing $122k at 7% for seven years.
I Understand I pay cap gains - done it several times...but, because I don't receive the money until the contract ends, when is it due?
4
Posted on 7/8/24 at 1:21 pm to rpg37
I believe you have the option to report the entire transaction in the current year or report it as an installment sale over the course of the contract. There is a form for that. If you are charging interest on the installment contract you should report the interest income.
Posted on 7/8/24 at 2:04 pm to rpg37
Did you live in it?
Did you lease it out before selling it?
Did you lease it out before selling it?
Posted on 7/8/24 at 2:38 pm to LSUFanHouston
Never lived in it. Bought as rental and maintained the same status all my years. Selling because it's 300 miles from me now and maintenance was too concerning for me given the distance.
Posted on 7/8/24 at 2:48 pm to CEB
quote:
I believe you have the option to report the entire transaction in the current year or report it as an installment sale over the course of the contract.
If it is a capital gain transaction. If you do enough selling of real property, the IRS might consider you a "dealer" in which case its ordinary income vs. capital gains and may not be deferable.
Talk to your tax preparer professional.
Posted on 7/8/24 at 4:22 pm to rpg37
I don’t know shite here really, but if you are saying you aren’t getting any money up front then that’s as much a contract issue as anything.
The tax is paid more by the terms of when the money changes hands and more importantly the contract terms.
Seller finance you really aren’t closing this deal until the contract is over after 7 years, I’d try and word it like that unless you want cash now and to pay taxes now.
The tax is paid more by the terms of when the money changes hands and more importantly the contract terms.
Seller finance you really aren’t closing this deal until the contract is over after 7 years, I’d try and word it like that unless you want cash now and to pay taxes now.
Posted on 7/8/24 at 5:23 pm to baldona
No, I am their down payment (20%). Minus the closing costs and fees (about 9% more), I am coming out of this +$20k. Now, they have 84 months of paying $1,820ish. My question, though, is asking if I pay the capital gains now, over time each year, or at the conclusion of the year seven.
Posted on 7/8/24 at 7:34 pm to rpg37
There will be two parts of the gain. You will have depreciation recapture, and the rest is capital gain.
The depreciation recapture gain must be all reported in the year of sale.
The remaining capital gain is reported as payments come in. So if you get a down payment, the portion of that, that is the gain, is taxed in year of sale.
The installments are part gain, part basis, and part interest. Tax on the gain and interest part of each payment is paid in the year the payment is received. We call this installment sale treatment. This is automatic, unless you opt out.
The depreciation recapture gain must be all reported in the year of sale.
The remaining capital gain is reported as payments come in. So if you get a down payment, the portion of that, that is the gain, is taxed in year of sale.
The installments are part gain, part basis, and part interest. Tax on the gain and interest part of each payment is paid in the year the payment is received. We call this installment sale treatment. This is automatic, unless you opt out.
Posted on 7/8/24 at 8:54 pm to rpg37
Ask your CPA about depreciation recapture and installment sales before you close. You may be surprised.
Posted on 7/8/24 at 10:32 pm to rpg37
quote:
No, I am their down payment (20%)
It doesn’t have to be though, that’s what I’m suggesting. I’m not suggesting not to do this, but it sounds like you haven’t talked to a title attorney yet? Id have a title attorney with experience in these work the paperwork first, then talk to a cpa.
All I’m suggesting is there may be a creative method of diverting the 20% that isn’t exchanging hands until it is paid off. If that benefits you. If it doesn’t benefit you, then you can work the contract differently.
Again I’m not a CPA and I’m sure the other advice is extremely sound. But if they aren’t actually paying you a down payment, there’s absolutely room to contractually change the terms and therefore potentially when taxes are owed.
This post was edited on 7/8/24 at 10:33 pm
Posted on 7/8/24 at 10:50 pm to rpg37
What I’m trying to say, why are you calling this a down payment?
The terms are they are paying you $1820 for 84 months? Then they own the home?
Again, I don’t have experience with this. But I don’t understand why you would give them a down payment they then pay back?
Is there a benefit to doing it that way? A down payment for a bank is generally to mitigate risk in the case of a foreclosure. But in seller financing there’s no risk here to you, you keep the property until the 84th payment is made.
The terms are they are paying you $1820 for 84 months? Then they own the home?
Again, I don’t have experience with this. But I don’t understand why you would give them a down payment they then pay back?
Is there a benefit to doing it that way? A down payment for a bank is generally to mitigate risk in the case of a foreclosure. But in seller financing there’s no risk here to you, you keep the property until the 84th payment is made.
Posted on 7/9/24 at 3:32 pm to rpg37
Wait, you are carrying 20%? Other 80% is a bank mortgage?
Posted on 7/10/24 at 3:37 pm to LSUFanHouston
I must have worded this poorly. Sorry.
The buyer's put 20% down. This is what I collected. After the closing costs, I got right about $20k the other day. I MADE THIS.
Now, they have a mortgage of $120k and they are paying this to me at a seven-year 7% clip. They send to me 84 months of this elevated payment.
The buyer's put 20% down. This is what I collected. After the closing costs, I got right about $20k the other day. I MADE THIS.
Now, they have a mortgage of $120k and they are paying this to me at a seven-year 7% clip. They send to me 84 months of this elevated payment.
Posted on 7/12/24 at 9:21 am to rpg37
quote:
I must have worded this poorly. Sorry.
The buyer's put 20% down. This is what I collected. After the closing costs, I got right about $20k the other day. I MADE THIS.
Ok disregard my previous posts, I misunderstood also.
Posted on 7/12/24 at 9:44 am to LSUFanHouston
quote:bingo
There will be two parts of the gain. You will have depreciation recapture, and the rest is capital gain.
The depreciation recapture gain must be all reported in the year of sale.
The remaining capital gain is reported as payments come in. So if you get a down payment, the portion of that, that is the gain, is taxed in year of sale.
The installments are part gain, part basis, and part interest. Tax on the gain and interest part of each payment is paid in the year the payment is received. We call this installment sale treatment. This is automatic, unless you opt out.
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