Tax treatment - Posted by Steve Joyce

Posted by David Butler on October 20, 2001 at 19:46:31:

Hello Steve,

Yep… :wink:

And as to YTM, technically speaking, that’s a “Yep” too! In fact, we had a little more in depth discussion about that very thing not too long ago down below here, at:

You might want to go ahead and look at some of the other points that are covered there as well…

Hope that helps, and again, many happy “returns” :wink:

David P. Butler

Tax treatment - Posted by Steve Joyce

Posted by Steve Joyce on October 17, 2001 at 13:46:30:

If I purchase a MH for $4000 and seller finance it with a note for $6000 for 48mo, @ 12%, then sell that note on the secondary market in the same year, how will that be treated come tax time. Let’s assume I am labeled a “dealer” by the IRS. I know I would be liable that year for the $2000 gain on the sale of the MH that created the note but what about the sale of the note?

Thanks in advance.


Re: Tax treatment - Posted by David Butler

Posted by David Butler on October 18, 2001 at 13:05:27:

Hello Steve,

There are some complexities that may or may not apply, but in general, you will likely sell that note at a discount of some sort, which should result in less than $2,000 as being the “declared” income in the final return. But, if you were able to sell it at par, you still have declared the $2,000 as part of the original sale. Same $2,000 - now cash, instead of paper. You would have ordinary income tax owing on any interest you received during your holding period. This too may be offset by the discount you take when selling the paper.

Like all tax questions, you need to review your personal situation with your own tax counsel to get the full scope of tax treatment for your particular circumstances…

Hope that helps, and that things don’t become too “taxing” on your deals :wink:

David P. Butler

Re: Tax treatment - Posted by Steve Joyce

Posted by Steve Joyce on October 18, 2001 at 13:34:30:

Thanks Dave -

I think you clarifed something for me. If I sell the note at a discount, the amount of that discount can be deducted from the amount of the gain from the original sale that created the note in the first place. Did I read that correctly? If so that was the piece that I was missing.

It’s been a few years since I got into the nitty gritty on YTM. Doesn’t YTM assume that all payments in the cashflow can be invested at the discount rate? For instance if the YTM on a note is 15% in order to truely achieve an annualized return of 15% would I have to invest those payments in a vehicle paying 15%? Like I said it’s been a few years on YTM.