My uncle was recently thinking of selling one of his properties in a thriving market in Indianapolis. Instead of taking the normal route, I convinced him to sell it to me on contract. We are still working out terms.
A question I have is this:
If he is to sell it to me on contract, how to those taxes work for him? Is the income he receives from my payment taxable a normal income? Do I claim the house on my taxes though I don't have the deed in my name yet?
What exactly do you mean by "on a contract"? Do you mean a land contract aka contract for deed? If so, then, yes, you are the equitable owner and you pay and claim all property taxes. The interest part of your payment would be a deductible expense for you.
Life is more complicated for him. Part of the money you pay to him is interest. That's taxable as ordinary income. The other part is principal on the loan you're repaying. For him, that has two parts, too. Part of it is the "basis" on the property. That's not taxable at all. The other part is "gain" and is subject to capital gains taxes.
Jon Holdman, Flying Phoenix LLC
Thanks @Jon for the quick reply. My apologies, yes. It is on a land contract. He attempting to avoid the most tax at all costs. His thoughts were originally to 1031 this investment property but he is in no need for an alike investment.
Any ideas on how I can go about acquiring this property with the lease amount in tax possible for my uncle?
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