Owner-financed home sale- interest v no-interest - Posted by Steve-MA

import · June 10, 2008, 5:10pm

Posted by Steve-MA on June 11, 2008 at 17:15:19:

Thanks, that’s very helpful, Bill. I have now found some info with a search for “implied interest” and that led me to a larger trove via “imputed interest.”
-Steve

import · June 10, 2008, 5:10pm

Posted by Steve-MA on June 10, 2008 at 17:10:10:

Is it equally legitimate, if a home seller will take only a portion of the sales price up front, to specify a sale price as, say, $800,000 with %500,000 down and 3 payments a year apart of:
100,000 + 18,000 interest
100,000 + 12,000 interest
100,000 + 6,000 interest
or alternatively to specify the sale price as $836,000
with the same $500,000 down and no-interest installment payments a year apart of:
118,000
112,000
106,0000 ?
Thanks for any thoughts on that.

Steve-MA

import · June 11, 2008, 9:24am

Re: Owner-financed home - Posted by Bill Jacobsen

Posted by Bill Jacobsen on June 11, 2008 at 09:24:56:

In the first case I believe you meant to say, “1 payment at the end of each year for 3 years.” You are then charging 6% interest. Isn’t it easier to just specify when payments are to be made?

In the second case you are charging no interest. It is an attempt by the seller to change interest income to long term capital gains. On the buyers side, they lose interest deductions but start with a higher basis. If the home is going to be owner occupied they won’t care about the basis but probably wouldn’t like to lose the interest deduction.

I think the issue is “implied interest” in the second case. Talk to your CPA or Attorney.

Bill