If I owner finance a piece of land, is the the whole gain taxable in the same year it sells?

Question

I live in TX, so with regards to Federal Tax, if I owner finance a piece of land, will I have to pay taxes on the amount as if it is a cash sale?

Answer 1

Check IRS publication 537 about installment sales. An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. The gain on the property is recognized on your tax return over the period that you receive payments. So if you finance the property over a period of five years, you recognize the gain over five years. It is reported on Form 6252.

Answer 2

This is called a seller-financed mortgage, and I (a tax professional) currently have one - lucky for you, huh?
You claim the income in the year in which you receive it. You should also be aware that you may need to issue a Form 1098 Mortgage Interest Statement to the buyer, so that they can deduct the interest they're paying. Don't forget that any interest you get from them must be reported on Schedule B of your tax return, with the buyer's name and Social Security number where you would normally put the name of the bank.

Answer 3

If you take back the buyer's note or promise to pay, you may be able to report your gain on the installment method. Under the installment method, you compute your gain as a percentage of the selling price, and you report the proportionate amount of gain when you receive each payment.

You should consult a qualified tax advisor who can inform you as to the requirements and limitations of the installment method, and describe how it applies to your particular situation.

Answer 4

WELL i do not know about Texas,,,but in California we have 18 months to reinvest the money before it is subjected to 33% tax...call a tax man where you live....just say you have a question re; a piece of land....thanks

Answer 5

yes

Answer 6

no