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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15588
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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had two houses on property mine and a contract for deed with

Resolved Question:

had two houses on property mine and a contract for deed with family member who walk out on me had to fix there house to sell whole property sold full property for another contract for deed how do we file taxes on it this year
Submitted: 1 year ago.
Category: Tax
Expert:  Megan C replied 1 year ago.

Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

So, did you sell a portion of the property, or did you sell both houses?

Megan C :

When you sell a property as contract for deed you can do one of two things. You can recognize the capital gain on the sale immediately in one year, or you can spread it out like an installment sale and pay a capital gains tax on only the portion of the gain you receive that year

Megan C :

In both cases, you will have ordinary income to the extent that you have interest payments from the note.

Customer:

both houses all property

Megan C :

Okay...are you looking at a gain or a loss?

Customer:

a loss for repairs before we could sell all down pmt. was 50,000 but had to pay 2 realtors ended up with 32,000 gain and about 10,000 in repairs

Megan C :

In any case, you can either recognize the entire gain in the year of the sale (remember that you can exclude up to $250,000, $500,000 if married, on the gain of the sale of the portion of the property you used for your house, provided you lived there 24 out of 60 months

Megan C :

What did you purchase the property for?

Megan C :

and how much work did you put into the property?

Customer:

190,000 purchase 10,000

Megan C :

and what is the total selling price (I realize you aren't getting the full amount this year)

Customer:

190,000

Megan C :

Okay, so overall you have a loss equal to $10,000 plus your realtor fees

Megan C :

So you will not actually pay tax on the income.

Megan C :

So, you cannot use the installment method. That is only used to account for gains.

Megan C :

What you will do is report the sale in the current year. You will not be allowed to take the loss on the portion of the property that you lived on.

Megan C :

You will report on schedule D, you can only claim the loss on the portion of the property that was an investment to you.

Megan C :

Then, you will report as ordinary income any interest payments you receive from the sale.

Megan C :

The IRS says in publication 537 Sale at a loss. If your sale results in a loss, you cannot use the installment method. If the loss is on an installment sale of business or investment property, you can deduct it only in the tax year of sale.

Customer:

we only lived in our house 6 months a year and none of the repairs was on our house only on our families house

Megan C :

Well, what you do is you take the $190,000 plus the realtors fees and divide that total by half. That's your basis in the investment property

Megan C :

Add to that basis the repairs, because they are to do with that property

Megan C :

Then, take the $190,000 you are getting for the property, and divide that in half. That's your selling price. Take that half and subtract out the basis you just calculated for the investment property. This is your loss.

Megan C :

This is a capital loss, You can deduct against capital gains, and up to $3,000 can be deducted against other income.

Customer:

so is contract for deed good for us our not

Megan C :

It doesn't matter really, your tax treatment is the same as an all out sale, with the exception that you will have ordinary income to the extent you have interest payments.

Megan C :

I mean it doesn't matter from a tax perspective.

Customer:

I will have my husband read this can we ask more questions later if he has them to ask

Megan C :

You certainly may! I will be more than happy to assist you later, if you have follow up questions.

Megan C :

Before you go today, though could you please rate as "excellent" so that I may receive credit for assisting you today?

Customer:

yes how do I get you back to ask more questions

Megan C :

You come back to this page, and you will have a box that you are able to reply to.

Customer:

ok

Megan C :

Glad I could help :-) The rating feature is located along the bottom of your screen.

Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15588
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and other Tax Specialists are ready to help you
Expert:  Megan C replied 1 year ago.
Thanks Doug for your positive rating. I understand that you may be back to answer follow up questions. Please do so using the box below. Thanks again for being a valued JustAnswer.com customer.
Customer: replied 1 year ago.


he will read this now and answer

Expert:  Megan C replied 1 year ago.
Okay, great ... thanks!
Customer: replied 1 year ago.

we sold the property for 65,000 to family member who talked us into refinancing the property for 155,000 so they could remodel there house. when they left we were stuck with a 136,000 dollar balance on the loan
inturn we had to refinance our lake home to payoff the 136,000 to get a clear title on the property so we could due the contract for deed so does factor anywhere into our taxes do we have to claim the principle amount of the monthly payment we receive from the contract for deed

Expert:  Megan C replied 1 year ago.
Thank you for that additional detail.

Where this factors into your taxes is that the interest you receive (but not the principal) is considered income to you. You will claim that as "other income" on your tax return. This is taxed at your ordinary interest rate. So, you don't have to declare the entire payment as income, just the interest portion of it.

Please let me know if you need further assistance. Thanks again for choosing JustAnswer.com
Customer: replied 1 year ago.


may have more questions later

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Megan C
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Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level