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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 585
Experience:  10 years experience
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My wife and I are purchasing a 2nd home. It is $65,000.00

Customer Question

Hi. My wife and I are purchasing a 2nd home. It is $65,000.00 and I'm putting $10,000.00. Immediately upon closing, I'll be selling the house to my step-daughter and her husband on an installment sale. Their monthly payments will equal the monthly mortgage. Do I have to file a form 5262 with the IRS and is there any tax liability that I will incur ?? Note: sale price is $10,000.00 below my purchase price.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
Hi and welcome to our site!When you sell to the related person below the FMV (fair market value) - that is considered as a gift.So based on your information - assuming that your purchase price $65k represents the fair market value - you are -- gifting $10k/$65k = 15.4% of your interest, and -- selling $55k/$65k = 84.6% of your interest in that property.As long as the gift is below $14,000 per person per year - there is no gift tax circumstances - and you do not need to file the gift tax return.You report interest on an installment sale as ordinary income in the same manner as any other interest income. If the installment sales contract does not provide for adequate stated interest, part of the stated principal may be recharacterized as "imputed" interest or as interest under the original issue discount rules, even if you have a loss. You must use the applicable federal rate (AFR) to figure the unstated interest on the sale. Under the installment method, you include in income each year only part of the gain you receive, or are considered to have received. However - as your selling price is the same as your basis - and there is NO gain - do not need to use Form 6252, Installment Sale Income.You simply report the sale transaction in the year the sale occurs.But you will report interest income every year you will receive installment payments.