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Also known as land contracts, contracts for deed are installment sales pertaining to homes. A homeowner selling a home in a contract for deed retains ownership until the installment sale contract is fulfilled.
Whoever receives the installment obligation as a result of the seller's death is taxed on the installment payments the same as the seller would have been had the seller lived to receive the payments. For an installment obligation, payments include:
(1) a return of a portion of the asset's cost (basis) which is not taxable,
(2) a portion from the prior sale of the asset which is taxable as a capital gain, and
(3) taxable interest on the note.
I agree with your CPA.
Your sister's CPA will have to deal with the IRS if they audit your sister.
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