I have a 2 bedroom home I’m selling on a real estate contract. Normally I am able to write off depreciation on the property and have tax benefits.
When I sell my rental on a real estate contract will I still be able to write off the interest on the loan? Or, since the buyer will technically be making my payments, do I lose tax benefits completely even though the loan stays under my name?
In conclusion this is a 2-part question, what tax benefits, if any, will I still have once it’s sold and what tax benefits will the buyer have? (I told her I’d find out).
As the seller, you remain the legal owner. The buyer becomes the equitable owner entitled to the income tax deductions. Your big benefit is you can report the sale to the Internal Revenue Service as an installment sale, paying capital gains tax on your profit over the years you receive principal payments from the buyer. You also get to pay ordinary income tax on your interest income received.
Also, since you are technically the one who is paying the property taxes to the municipality, you retain the right to deduct those taxes as an expense.
You can find further info on this topic by doing a quick google search.
Ok so i can write if the taxes on the property since i’m still paying for them. What out interest on my loan with countrywide? Can i still deduct interest that a i pay?
Second question is, what tax advantages does the buyer have. None, right?
The buyer on a land contract has all the rights of ownership to include the property tax and home mortgage interest deductions on his Schedule A.
The seller on a land contract should be escrowing the property taxes and hazard insurance for his buyer and paying those when due. The seller can do this himself or outsource everything to a loan servicing company. The property tax is a pass-through for the seller and is not deductible on the seller’s tax return since it was actually paid by the buyer.
The mortgage interest paid by the buyer is ordinary income to the seller and reported on the seller’s Schedule B. The mortgage interest paid by the seller on the underlying loan is an investment interest expense on the seller’s Schedule A (which will offset some of the mortgage interest income on the seller’s Schedule B).
Just how I see it. Consult your own tax advisor for specific guidance.