Posted: Thu Jul 21, 2005 3:20 am Post subject: How is owner financing or carry back loan useful?
Owner financing or carry back loan is useful because:
It is a good source of income and helps to sell the property quickly as there is no fixed criteria for buying it.
It becomes a good option when the property can't be financed by any means or when the owner has a lot of equity in his property but may not need the money paid by a lender at the closing of a mortgage.
The rate of interest offered by a seller can be more reasonable than that offered by any other lender.
If the prices in your area are high or if the sale price you aim at exceeds the estimated property-value, you can close the sale quickly by financing the entire part or a fraction of the purchase yourself.
In case a buyer defaults, the deal ends. The seller can then keep whatever down payments and monthly installments the buyer has paid till that period, and sell the home again at its market price to another buyer.
Since the seller can spread out gain for a long period or postpone all of it, therefore his tax liability is reduced.
Posted: Thu May 18, 2006 1:03 am Post subject: capital gains tax on carry back loan
Would capital gains tax be due on the entire purchase price if I carry back the loan and the buyer only pays me a down payment of 1/5 of purchase price or do I only pay capital gains tax on the amount received for the down payment. It is an interest only loan for 3 years.
Posted: Thu May 18, 2006 1:29 am Post subject: RE:capital gains taxes
Hi,
As far as I know, there is an installment method for selling properties where the buyer gets the title to the property after he makes the down payment.
The seller has to pay capital gains taxes only on the proceeds received through the down payment in that particular tax year.
Posted: Thu May 18, 2006 1:39 am Post subject: RE:
Hi,
In an installment sale, being a seller you will have to pay capital gains taxes only on the sale proceeds obtained in that tax year. For instance, if the buyer has paid 40% of the sales price in the first year, you pay only 40% of the capital gains taxes.
Being the seller, you will be paying capital gains taxes on the profit of the sale, and it doesn't matter if you get the entire sales price in one single amount or through mortgage payments for a certain loan term.
I would suggest that you consult a tax advisor regarding the maximum amount of taxes that you will have to pay.
I have heard that you can defer taxes indefinitely if you sell off your home that has been your primary residence for a year. Also, you can defer taxes if you shifting to a house which costs as much as the price of the previous property or more than that.
But if you are giving the buyer a mortgage, then you should be paying ordinary income taxes also and that too, on the interest you receive each year on the loan.
Eileen it means that the buyer would be borrowing from you instead of or in addition to from a mortgage lender. It is sometimes done when a buyer is not able to qualify for a mortgage for the full amount of the purchase.
Sam
