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Contract for Deed by Dale (GA) on April 3, 2010 @22:18

I've owned a house in Georgia for 24 years and there is no mortgage on it. I moved out into a new house less than 2 years ago and after being unable to find a buyer, I got a lease to own tenant. Their contract expires in two months and they are unable to qualify for a loan even though they have paid the rent on time. I wanted to finance the house with a Contract for Deed agreement, but my main goal was to avoid paying any capital gains taxes on the principal. I expect to owe income taxes on the interest income, but I would not want to offer this type contract if it would mean that I would owe capital gains taxes on the appreciation of my house (above my basis) that would be tax exempt if the buyer found other financing. Can anyone answer this question?
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Re: Contract for Deed by Barron on April 3, 2010 @22:37 [ Reply ]
Don't rely on internet advice.
Talk to an accountant about when you are responsible for capital gains, etc. Good luck.

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, (if they have anything down or paid an option deposit).
That is good.
Extending the deal longer can cover you for the income and delay a sale.

Re: Contract for Deed by Anonymous on April 3, 2010 @23:00 [ Reply ]
I already asked my CPA whether me self financing the house would be considered a sale and therefore make my capital gains on the house exempt. She said that it would and that if I foreclosed on the house that my basis would be raised to the sale price that it sold for and not my original basis. I just learned about this Contract for Deed agreement today and have not contacted any lawyer or CPA because of the Easter weekend. I just wondered if this type contract would not allow the capital gains to be considered exempt due to the seller (owner) holding the deed until the house is paid off or refinanced.
Re: Contract for Deed by Monipenny on April 3, 2010 @23:57 [ Reply ]
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.

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