The Landlord Protection Agency  
Main Menu, Landlord Protection Agency homepage Membership With The Landlord Protection Agency Free Landlord Services Member Services  

Re: Contract for Deed - Landlord Forum thread 199707

Re: Contract for Deed by Monipenny on April 3, 2010 @23:57

                              
Barron said "Most contract for deed tenants are just tenants when they can't qualify. Thinking of themselves as possible buyers usually makes them more responsible tenants because they feel they have a stake in the property"

I think Barron is referring to a lease option or rent to own.

If you are talking about a land contract, I believe that is also called a contract for deed. This is different than a lease option. You can sell your house on land contract and not pay capital gains because you are not getting the lump sum on the sale, but P&I payments. That is the advantage to selling property on land contract, although not a popular option as it once was. As you already know you will pay income tax on the interest.

There are pit falls to this, if the buyer has I believe 20% equity and/or made payments for 5 years then he defaults on the loan, you would not be able to simply evict him, you would have to forclose on him to get posession back. Basically, you would be acting the same as a bank. Those who buy on land Contracts are not tenants/renters, they are buying the property the same as anyone who obtains a loan to buy a house.

If the buyer at some point in the land contract gets financing to buy you out, you will likely have to pay capital gains on that portion less the depreciation. Your accountant should be able to advise you on that.

[ Reply ] [ Return to forum ]

Re: Contract for Deed by Dale (GA) on April 4, 2010 @07:19 [ Reply ]
Thank you for the information. My biggest concern is that all the capital gains would be tax free if a buyer finds alternate financing because I have owned and resided in the house 24 of the last 60 months. Actually, I lived in the home for 22 years and moved out 21 months ago. My basis is only about $80K and the sale price on the house is $150K, so there is perhaps $70K in appreciation and I have taken no depreciation while renting the house this past year. If by offering a contract for deed self financing agreement could cause any of that $70K in appreciation to become taxable over the term of the loan, even with an early payoff, then I will probably not offer it as an option.
Re: Contract for Deed by OK-LL on April 4, 2010 @09:45 [ Reply ]
Here in OK, a Contract for Deed is treated as a deed and mortgage. It transfers equitable title to the buyer and the sellers takes the position of mortgage holder. So even if the contract defaults the first month, the seller has to foreclose to recover marketable title. Many of the contract for deeds are written with a clause that says it reverts to a lease agreement in case of default and resulting tenant will be evicted, but that is not an enforceable clause here. Sellers under contract for deed will sometimes require buyer to pre-sign a quit claim deed reverting the property to seller, to be used in case of default. Those QCDs can be attacked in court and usually fail. BUT if you have a buyer who doesn't know those clauses and QCDs are not enforceable, you may get an easy recovery if they move out quietly, which is why they are included in the transaction. Just FYI.
Re: Contract for Deed by Anonymous on April 4, 2010 @12:37 [ Reply ]
Another quick FYI: Land contracts can qualify for the new first time home buyers credit. If you write the contract correctly and go through an accountant, you can get their tax credit check deposited to you as a down payment on this sale. This helps out the buyer and the seller. Consult an accountant on how to do this. It is possible and I have seen it done 3 times now. The seller gets the check and the buyer gets credited with a down payment on the sale. Act quickly as this credit is due to expire.
Re: Contract for Deed by Dale (GA) on April 4, 2010 @13:48 [ Reply ]
Thanks for all the advice. I am not sure that my initial inquiry was answered though. I guess that I will have to ask a CPA. I was planning on just transferring the deed to the buyer and listing myself as the lien holder. I was advised by someone to use a Contract for Deed instead, so that any foreclosure process would be easier and quicker. I wondered though if using the Contract for Deed where I retain the deed until the loan is paid off would change the status of my capital gains exemption on the appreciation of the house over the past 24 years. In other words, if all the capital gains would be tax exempt if I sold it for cash or bank financing, would all the capital gains also be tax exempt if I did owner financing and would a Contract for Deed instead of transferring title at closing make a difference?

Check-Out
Log in

Look-up
Associations
Attorneys
Businesses
Rentals Available
Rentals Wanted
Realty Brokers
Landlord Articles
Tips & Advice
Tenant Histories

Other Areas
Q&A Forum
Free Forms
Essential Forms
Landlord Tenant Law
Join Now
Credit Reports
About Us
Site Help



Contact The LPA

© 2000-2023 The Landlord Protection Agency, Inc.

If you enjoy The LPA, Please
like us on Facebook The LPA on Facebook
Follow us on Twitter The LPA on Twitter
+1 us on Google