I inherited a house from my father in another state. I would like to do an owner will carry contract. What are the tax ramifications for me?

Asked by April, Nipomo, CA Fri May 20, 2011

I understand if I sold it outright I would not pay any taxes on it as an inheritance. So as an owner carrying the finance, do I pay on just the interest the buyer is paying me over the term of the loan?

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John Juarez, Agent, Fremont, CA
Fri May 20, 2011
Carrying the financing on the sale of a home in another state can carry risks that you may not be willing to bear. What will you do if the buyer does not pay? What will you do if the buyer does not insure the house and prove to you that they have insurance? What will you do if the buyer does not pay the property taxes? How will you know? Is the buyer putting down a substantial down payment so that the buyer will have an equity position and reduce the risk of non-payment? You need to get good answers to these questions and more.

You should also seek an answer to your tax question from a professional.
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David Norwood, Agent, ARROYO GRANDE, CA
Fri May 20, 2011
If the home is conveyed (sold), and you carry the loan, the income from the interest can be taxed. The other taxes are the same compared to not carrying the loan. You will not have to pay anymore property taxes after the home is sold. If that does not answer you question, please give me a call at 805-471-0828 or david@dnorwood.com
Web Reference:  http://dnorwood.com
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Sonsie Conroy, Agent, San Luis Obispo, CA
Fri May 20, 2011
I am NOT a tax professional, but do have a bit of information. Be sure to check this out with a tax pro before taking any action!

You are granted a stepped-up basis as of the date of your father's death. In other words, the home may have cost him $50,000 20 years ago and on the date of his death it is worth $200,000. That is its value to you. If you sell soon aftewards, the value will not have changed that much and you will likely owe no tax.

As you probably already know, the profit from selling your primary residence is not taxed if it is under $250,000 (or $500,000 for a married couple). Since this home is not your primary residence, you would have to pay tax on the profit you earn when selling.

If you set up an owner-financed sale, you will be paying taxes on the profit (including the interest). You do need to check with a tax pro or the IRS (anonymously if you wish) to find out the rules for installment sales, which is what you would be involved in.

Depending on your circumstances, you might be better off hanging on to the home and renting it out until the RE market improves. Or sell it outright and pay little or no tax on the transaction. Or get a monthly check. Good luck with your decision!
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John Nix, , Nipomo, CA
Fri May 20, 2011
As mentioned tax questions are best answered by a CPA...did the property go thru probate? Was there a value placed on the property? Are you selling it for more than that value? I just sold a property here in Nipomo where the tax basis was the same as the sales price so my seller had no tax consequences even tho she received all cash.

Nipomo Broker
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Anna M Brocco, Agent, Williston Park, NY
Fri May 20, 2011
When it comes to any tax related questions, it's always best to consult with your tax professional and or tax attorney, either party can best advise as it relates to your specific situation.
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