Mortgage Intrest And 1098

JamesStreet profile photo

I am posting this for my friend. He sold his personal residence on a contact for deed. He was told that the buyer gets to claim the intrest and he forward the 1098 from his bank. Well the buyer went in to have their taxes done at HR Block and they were told that they can not claim the intrest. She explained she was buying contract for deed but they said no way. Can someone tell me what needs to be done should he tell her to go some where else or should he have a new 1098 created for her?



What do the rest of you do with this issue?



Thanks for the help.



J

Comments(23)

  • JamesStreet29th January, 2006

    bump

  • NewKidInTown329th January, 2006

    Give us some details on the financing you gave your buyer.

    Was the sale price greater than the remaining loan balance?
    Is the interest rate you are charging on your contract greater than the interest rate you are paying on the underlying mortgage?
    Are you financing the entire sale price, if not how much more than the remaining loan balance on your underlying mortgage?

  • JamesStreet29th January, 2006

    This is what I know. The payment is what his mortgage payment is (was). He did sell it for more than the mortgage and the new buyer must refi in 2 years. Intrest is the same as what it was (is). I will have to call him an get more details.

    J

  • linlin29th January, 2006

    If the buyer paid the interest (mortgage payment) for the year they can claim the interest. He can generate them a statement instead of just giving them his.

  • JamesStreet29th January, 2006

    Should it be a 1098 or just a staement of intrest?

    J

  • JamesStreet30th January, 2006

    bump

  • linlin31st January, 2006

    A statement of interest paid is enough although technically the buyer does not have to have one to file.
    The owner needs her social and address to report the interest he got from the buyer on Sched B

  • NewKidInTown326th January, 2006

    Remember that the entire IRA amount is taxable at your ordinary income tax rate when you convert. Best to consult with your tax advisor first. Determine whether your tax liability is lower if you convert before you realize a profit on the sale of property held within your IRA.

  • NewKidInTown326th January, 2006

    Remember that the entire IRA amount is taxable at your ordinary income tax rate when you convert. Best to consult with your tax advisor first. Determine whether your tax liability is lower if you convert before you realize a profit on the sale of property held within your IRA.

  • happyhome27th January, 2006

    http://www.entrustcarolinas.com/index.sqrl

  • landpimp20001st February, 2006

    As I stated I will leave if there is blood in the streets. If things reach that level the IRS will be the least of my worries.

  • edmeyer2nd February, 2006

    My strategy is essentially "hold indefinitely" meaning I do not sell to cash out. I do rely on refis and 1031 exchanges to grow and to move equity to meet my goals. Within the last two years I have been exchanging large equities in the west for leveraged but cash flow positive properties in the midwest and southwest. If the appreciation rate slows down drastically in the west, I will be looking east to do more exchanges.

  • NewKidInTown324th January, 2006

    Yes, definitely.

  • bubbapoof31st January, 2006

    Less than a year will probably be OK. My 1031 exchange expert recommended that the purchase and the exchange fall on two different tax returns. I purchased my property in May 2005, and he recommended that the sale occur in 2006. I did not have to wait until May.

  • NewKidInTown31st February, 2006

    bubba,

    vin1058 has nothing to worry about. He was using his property as a rental. An exchange now has a business justification -- not just tax avoidance.

  • wexeter2nd February, 2006

    I agree. You clearly had the INTENT to HOLD the property for investment purposes, but now have a valid business reason for disposing of the property and doing another 1031 exchange. The key is to document the situation well so that you can easily prove the issues involved if audited.
    [addsig]

  • NewKidInTown322nd January, 2006

    You need to get advice from a licensed professional that works with 1031 exchanges.

    From the information you provided, it appears that you are acting as a dealer to real estate not as an investor. In this case, your property is not eligible to participate in a 1031 exchange.

    If the licensed professional determines that you may still participate in a 1031 exchange, you can do so with your second preconstruction condo as the replacement property, or you can use a TIC project. 1031 exchange will work for either one, provided you meet the eligibility requirements.

  • NewKidInTown323rd January, 2006

    In a delayed exchange, you sell your relinquished property and apply the proceeds of the sale to the purchase of your replacement property. The exchange must be completed within 180 days and you must use a qualified intermediary to hold all of the proceeds from the sale of the relinquished property.

    There are other specific rules that a qualified intermediary will be happy to explain to you.

  • wexeter2nd February, 2006

    You could try structuring a 1031 exchange and use the arguement that you intended to hold but your financial situation changed. However, you only held title for a very short period of time, so there will always be a risk that your transaction could be disallowed if audited. As long as you are aware of the risk and you are comfortable with them, you can proceed with a 1031 exchange transaction.
    [addsig]

  • estateXchange1st February, 2006

    Here is more to the story as I have been reading other topics:

    I currently own 6 houses: My primary residence, 3 are rented, 1 is being rehabbed to rent, and the subject property that is for sale.

    The subject property was purchased, rehabbed, then rented for about 6 months. The tenants were evicted and has remained vacant while trying to sell. The reason for selling is that the home is too far away to manage. The property is also titled under my LLC.

    This year I plan to Renovate and Resell (flip) some properties. This would put me in the dealer category. Would this house that I am selling count as a dealer home or a capital gain? Would the taxes be the same if I sold today or waited the 366 days?

  • NewKidInTown32nd February, 2006

    Quote:Would this house that I am selling count as a dealer home or a capital gain? Would the taxes be the same if I sold today or waited the 366 days?This house that you are selling is an investment property. It is not dealer realty. The sale would not be a dealer disposition.

    If your holding period is one year or less prior to the sale, the tax rate will be the same as your ordinary income tax rate. Sell after holding at least one year and a day to get the long term capital gains tax rate -- currently 15% for tax brackets 25% or higher, and only 5% for tax brackets 15% or lower.

  • estateXchange2nd February, 2006

    Thanks NewKid.

    So let me get this straight. Even if I am considered a dealer because I "flip" properties (or as I plan to this year and for years to come), ANY properties I rent and hold for longer than one year are considered "investment properties", thus claiming capitol gains?

  • NewKidInTown33rd February, 2006

    That an individual is conferred "dealer status" is a misconception. The IRS does not classify individuals as dealers, but instead looks to the form and substance of each transaction to determine whether a "dealer disposition" has occurred.

    When this happens, the IRS says that you "acted" as a dealer to real estate for that transaction. Does not automatically make you a dealer to real estate for all transactions.

    Theoretically, you should be able to use an accounting system with distinct subaccounts to keep your dealer property activities independent from your investment property activities. This is easier said than done for most do-it-yourself bookkeeping systems.

    However, there is a simpler alternative. Most of the lawyers in most of the real estate web forums will suggest that you segregate your investment activities from your dealer activities by using separate business entities for each activity type. The rationale is that when you conduct all your activity from within a single business entity or under your own name, a preponderance of dealer activity may taint the occasional investor sale.

    Tainting means that since the preponderance of your activity is a dealer disposition, then all of your sales from within the same business entity are also deemed to be dealer dispositions. Having separate business entities for each type of activity avoids the tainting. Remember that a dealer disposition is always a dealer disposition regardless of the holding period.

Add Comment

Login To Comment