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Who gets the tax benefits in a land contract?

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Todd Bullinger

Real Estate Investor from Lima, Ohio

Feb 15 '12, 07:17 AM


I'm currently in the process of purchasing my business. I'm also purchasing the building on a land contract. My question is when it comes to taxes, who gets the tax benefits of depreciation, etc? The seller or me? We have agreed to a price and now our attorneys are just going through the language of the contracts. I just want to make sure I don't need to have any specific questions to ask my attorney at our next meeeting.



Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Feb 15 '12, 07:37 AM
1 vote


The IRS consideres a land contract as a transfer of ownership. The buyer gets the same tax benefits as if they bought it with an ordinary loan.



Jon Holdman, Flying Phoenix LLC


Shanequa J.

SFR Investor from Houston, Texas

Feb 15 '12, 09:48 AM


Originally posted by Jon Holdman:
The IRS consideres a land contract as a transfer of ownership. The buyer gets the same tax benefits as if they bought it with an ordinary loan.

Does this apply to owner's financing or subject to also?



Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Feb 15 '12, 09:58 AM


I assume you mean straight owner financing or owner financing with a wrap. Yes, both of those and a subject to would all transfer ownership, so would transfer the tax benefits. Lease/option does not, because it does not transfer ownership.

Not a CPA. Consult your CPA. Don't have one and trying to do this sort of transaction? Don't do it. Get a CPA.



Jon Holdman, Flying Phoenix LLC


Chris Masons

Real Estate Investor from Union, New Jersey

Feb 15 '12, 10:04 AM


Jon,

I Recently closed on a Contract for deed here in NJ and I received the same information that you are saying. Although I still hold legal title to the property the buyer (vendee) I believe, will still get the tax benefits - depreciation, interest deduction, expense write offs as long as he is actually paying for them.

regards,
Chris



Bill Walston

Real Estate Investor from Northeast TN, Tennessee

Feb 15 '12, 12:48 PM


Jon is correct on all counts. The IRS considers the land contract (AKA contract for deed), wrap, sub2, and just "plain ol' owner financing" to transfer ownership. With that ownership comes the tax benefits.

And his advice to run this by your tax pro is spot on!!



Todd Bullinger

Real Estate Investor from Lima, Ohio

Feb 15 '12, 01:06 PM


Thanks for you help guys. I do have my attorney drawing up all the documents and then I am speaking with my CPA this weekend. I just wanted to have a leg to stand on when I speak with them and not be completely in the dark.



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