DEAR BOB: My husband and I are avid readers of your columns.We own a townhouse that we bought as an investment. Now we are consideringselling it. If we agree to owner financing and retain title until the loan ispaid, can the buyers deduct the mortgage interest and property taxes on theirincome tax returns? –Melana W.
DEAR MELANA: Yes. The situation you describe is called aland contract sale, contract for deed, contract of sale, agreement of sale,installment land sale, and a zillion other names.
Purchase Bob Bruss reports online.
The basic idea is the seller retains the legal title untilthe buyer makes all or an agreed number of payments to the seller. If there isan existing mortgage, the seller uses part of the buyer’s payments to keeppayments current on that mortgage.
As the seller, you remain the legal owner. The buyer becomesthe equitable owner entitled to the income tax deductions.
Your big benefit is you can report the sale to the InternalRevenue Service as an installment sale, paying capital gains tax on your profitover the years you receive principal payments from the buyer. You also get topay ordinary income tax on your interest income received.
However, I do not recommend this type of sale for eitherreal estate buyers or sellers. The potential problem for buyers is often theseller is unable to deliver marketable title after the buyer faithfully madeall the agreed payments to the seller.
The potential problem for land contract sellers, in manystates, is the difficulty of getting a defaulting buyer out of the property ifthe buyer claims an equitable interest in it.
A better alternative is to transfer title to your buyer andcarry back a mortgage or deed of trust secured by the property. Then, if yourbuyer defaults, you can foreclose. For full details, please consult a localreal estate attorney.
NO EASY WAY TO FORCE RELUCTANT REALTY INVESTOR TO SELL
DEAR BOB: Thank you for your recent item about real estatepartition sales. Three of us jointly own a home; two want to sell. The thirddoesn’t want to sell and forces us to pay expensive monthly upkeep on the home.The property taxes have recently skyrocketed. What is the approximate attorneyfee to bring a partition lawsuit? The third party is inflexible and notapproachable. –Ken C.
DEAR KEN: Sorry, I have no clue how much a local real estateattorney will charge for a partition lawsuit, especially with a difficultco-owner. Try to negotiate a fixed fee, rather than an hourly fee, which mightescalate if the other owner resists.
Shop around. Ask for attorney recommendations from otherlocal real estate investors for names of superb real estate attorneys. You willprobably find a wide variety of fees quoted.
TWO MARRIAGES, TWO HOUSES, FOUR KIDS, CALL FOR AN ESTATEPLANNING ATTORNEY
DEAR BOB: My husband and I each own our homes from previousmarriages. We each have two grown children and need information how to listthese homes in our wills. We live in my home and have never added each other’snames to our deeds. How do we handle this? –Sharel B.
DEAR SHAREL: Please consult a local estate-planningattorney. But before you do so, be sure you know what you want to do with eachhouse after one of you dies.
Do you want each house to go to the surviving spouse? Or toyour grown children from your first marriages? Be sure the attorney you consultunderstands revocable living trust benefits so you can avoid unnecessaryprobate court costs and delays.
The new Robert Bruss special report, “How to Sell YourHouse or Condo for Top Dollar With or Without a Real Estate Agent,” is nowavailable for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or bycredit card at 1-800-736-1736 or instant Internet delivery at
(For more information on Bob Bruss publications, visit his
Real Estate Center).
Copyright 2006 Inman News
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