Posted by Wayne-NC on November 18, 2002 at 07:10:46:
Not being dealer property, I believe if I understand you correctly that the down payment is subject to the capital gains tax but how much over the basis? You said “the downpayment and balloon would be treated as partly taxable, depending on the amount of profit inherent in the principal.” Isn’t it all considered return of the basis or cost since the original cost was more that the down payment? Then all the gain would be taxed when the note balloons. Also, who determines the FMV (high or low) of the note for the opting out option? Thanks again in advance.
Capital Gains on interest only note - Posted by Wayne-NC
Posted by Wayne-NC on November 17, 2002 at 07:06:04:
If a person sells a property taking an interest only note, what are the long term capital gain and future tax implications? How is the down payment treated, as return or partial return of cost basis? Is it better to opt out and pay on the market value of the note? Who determines that if that is the case? I’ll supply numbers if needed for a more accurate answer. Thanks.
Re: Capital Gains on interest only note - Posted by JHyre in Ohio
Posted by JHyre in Ohio on November 18, 2002 at 06:47:13:
Assuming that the property qualifies for installment sale treatment (i.e. - is not “dealer” property), the downpayment and balloon would be treated as partly taxable, depending on the amount of profit inherent in the principal. If the FMV of the note is very low relative to its principal, opting out of the installment sales method may be appropriate, but would also complicate your accounting.