Contract For Deed, Depreciation And Cap Gains?
When selling a property on a Contract for Deed are you (the vendor of the CFD) still able to depreciate the property before the "buyer" completes the purchase?
Also, if a property is purchased and then immediately offered on a CFD with a contract period greater than 1 year, will you (the Vendor) be able to regard it as a long-term Capital Gains investment after the buyer completes the purchase 1+ year later?
I was wrong. I just found this, which says a CFD should be treated as an Installment Sale...
The IRS generally treats a contract for deed as a sale, which means the buyer has the tax benefits of ownership. Thus, the payments of interest that are made by the buyer in possession are deductible as “mortgage interest,” even though the buyer does not have legal title to the property. A contract for deed seller must report the transaction as an installment sale on form IRS Form 6252. Once sold, the seller cannot claim depreciation or any other tax benefits of the property. If the buyer defaults on the contract and the seller exercises his legal option to reclaim the property, the tax code treats the transaction as a foreclosure.
It varies from state to state, but most states treat it as an installment sale and no depreciation or other deductions are permitted once the Contract for Deed has been consumated.
[addsig]