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Old 03-11-2015, 03:16 PM
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private land sale

Hello and thanks for the help.

We wish to sell a land parcel in California that we split off from our main residence about 18 years ago. The parcel was worth about 200k 18 years ago. We wish to sell it say for 100K down and carry 350K with a balloon due in 5 - 7 years amortized over 30 years at approximately 5% interest. Since we can not boot up for a 1031 exchange, what is the best way to limit our federal taxes? Would the 100k down be tax free against the 200k basis?

Any and all advice is great appreciated..................Toronto



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Old 03-12-2015, 04:01 AM
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We wish to sell a land parcel in California that we split off from our main residence about 18 years ago. The parcel was worth about 200k 18 years ago. We wish to sell it say for 100K down and carry 350K with a balloon due in 5 - 7 years amortized over 30 years at approximately 5% interest. Since we can not boot up for a 1031 exchange, what is the best way to limit our federal taxes?=======>>>>>>>>> Installment sales are sales in which the buyer does not pay the full price for the purchased item within one tax year. Instead, partial payments are spread over multiple years. Installment sales are a powerful tool in the real estate tax planning arsenal. Both the buyer and you, the seller, can benefit from such arrangements. The buyer does not need to accumulate as much cash before purchasing, and you the seller, do not have to immediately recognize the entire gain from the sale; However, the tax rules surrounding the installment method can be complex, also, you can elect out of the installment method if you choose. A good reason to elect out of installment sale reporting is when you have capital losses to partially or completely eliminate the capital gain.This election will result in recognizing the entire gain in the year of sale. Here are four ways that installment sales can be used to your advantage: you postpone paying tax on a portion of the taxable gain from selling property until cash is collected, roughly matching the requirement to pay income taxes with the receipt of cash; interest income can be collected on amounts that otherwise would have been paid as taxes; an installment sale to a family member is an effective way to “freeze” the value of an asset for estate planning and income-shifting; income from a qualifying sale can be spread over many years to avoid exceeding income thresholds for higher income tax rates, the Medicare surtax and phaseouts of deductions and credits; starting in 2013, the 3.8% Medicare surtax applies to investment income when married persons filing joint returns have agi exceeding $250k and singles have agi exceeding $200k.

Would the 100k down be tax free against the 200k basis?========>>>>>>>>>>>>>>>CORRECT; each year you receive a payment, you must include in income both the interest part and the part that is your gain on the sale. You do not include in income the part that is the return of your basis in the property. Basis is the amount of your investment in the property for installment sale purposes. tax free; say, you sell your rental house to A for $100k. A paysYOU a $10K down payment and agrees to pay the remainder in equal $10K installments over the next nine years, plus 5% interest. YOU paid $40K for the house and own it free and clear; thus, YOUR total gain is $100K - $40K = $60K. This means that 60% of each payment represents gain from the sale, and the other 40% is return of YOUR basis. WhenYOU receive YOUr annual $10K payments from A YOU’ll have to pay capital gains tax on $6K. YOU’ll also have to pay tax at ordinary income rates on the $500 in interest YOU receive each year.



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