I wish to buy a residence from my grandfather though we wish him to owners financial it for me. we wish to know what a taxation implications would be for him such as collateral gains taxation or taxation upon a seductiveness of a note he would be holding
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Comments: 2 comments
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Dee
December 19th, 2009 at 5:34 pm
Capital gains (if he exceeds or doesn’t qualify for the exclusion) would be reported in small amounts each year (a portion of each payment he receives from you).
The interest is deductible to you and taxable to him. You deduct it on your schedule A, he reports the interest income on his Schedule B & has to provide your name and SSN.
If he does qualify for the one time capital gains exclusion, he’d probably be better off receiving the entire amount from you to invest, and you getting your mortgage elsewhere.
PepsiLime
December 19th, 2009 at 5:34 pm
if it’s his personal residence and he’s lived in it 2 out of the past 5 years, he can sell it to you for up to a $250,000 gain if single and $500,000 gain if married, and pay no capital gains tax on the gain. As far as the interest on the note, that would be interest income to him, and be taxable to him, and you would get the mortgage interest deduction on Schedule A – Itemized Deductions. If it’s not his personal residence, then he would owe taxes on the gain on the sale, but since you would be paying him over time, he could treat the sale of the house to you as an installment sale, and spread the gain, and corresponding taxes out over time.
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