L/O And Tax Deductible Interest?
What is considered interest and how is it determined to be tax deductible?
Specifically, I have a seller who is free and clear on her house. She wants to sell, but is not in desperate need for cash. Therefore, she is willing to still sell me the house on a lease option (I will spare you all of the details of the deal).
I have a potential buyer who will buy from me on lease option. My question is can I construct my "financing" for the buyer in such a way that interest is included in the offer, thereby making it tax deductible for my buyer despite me not first laying out cash?
If I've not been clear enough or you need more information to answer let me know.
Thanks everyone!
D:
YEP You can actually create a Note but do be careful that the "Interest" you are passing on for Tax benfits to your Tenant-Buyer DO NOT appear as an Equity Interest or looked upon by the IRS as an Instalment Sale.
To Avoid those and other potental LO Problems see my Post:
http://www.thecreativeinvestor.com/ViewTopic17254-25.html
Hope this helps!
Derrick Ali
Great advice!
Derrick,
Thanks for the reply, but now you've raised other questions in my mind!
I understand avoidance of the IRS and how it might view the interest (as equity), but is there anything special that must be done (legally, etc.) when writing up the contract?
For example, if a house is worth $100k, I sell it on L/O for $110k, but write the contract so it shows it as a $110k loan (essentially what a L/O is). Let's say the payment is about $900/month, $850 of that is interest. What else can or must be done to show this as a loan from me to my buyer beyond our agreement?
A Promissory Note and UCC Filing...