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Creative Real Estate Financing

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Scott Levin
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Owner Financing, Tax minimization / Installment Sale and Recommendations for Services

Scott Levin
Posted Mar 12 2024, 12:14

Hi,

I have a house in Denver that I have owned and lived in for the last 27+ of 30 years. I now have a renter in there who may be interested in purchasing the house from me with likely owner financing. My 250K tax benefit will run out before his lease does on the 2 of 5 rule, so it might be a good time for me to sell - and help him with a lower rate than banks can give while giving me income until he refinances. If I only receive the down payment this year (let's say 20%) can I write off the entire 250k towards that and structure future years to try to get in lower LTCG categories than all at once?

I'm looking for recommendations for someone who has experience structuring loans to minimize the taxes for me as well as either a service or software to maintain the loan, writing the note properly and how to receive payments etc. I am assuming since I would act as the bank - I would have to provide yearly interest tax statements for the buyer.

Thanks,

Scott

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Chris Seveney
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Chris Seveney
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Replied Mar 12 2024, 13:26
Quote from @Scott Levin:

Hi,

I have a house in Denver that I have owned and lived in for the last 27+ of 30 years. I now have a renter in there who may be interested in purchasing the house from me with likely owner financing. My 250K tax benefit will run out before his lease does on the 2 of 5 rule, so it might be a good time for me to sell - and help him with a lower rate than banks can give while giving me income until he refinances. If I only receive the down payment this year (let's say 20%) can I write off the entire 250k towards that and structure future years to try to get in lower LTCG categories than all at once?

I'm looking for recommendations for someone who has experience structuring loans to minimize the taxes for me as well as either a service or software to maintain the loan, writing the note properly and how to receive payments etc. I am assuming since I would act as the bank - I would have to provide yearly interest tax statements for the buyer.

Thanks,

Scott


1. You cannot take the $250k gain since you did not make that gain at the point of sale. You would lose it.

2. Why would you seller finance it for below market. You will pay ordinary income tax on that interest. Not a wise financial move.

3. For servicing, you will want to pay a licensed servicer vs. do it yourself. Its $35/mo and they handle everything. No software will be that cheap. Plus your time to create and send statements and tax forms...

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Scott Levin
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Scott Levin
Replied Mar 18 2024, 06:19

Thanks for the reply Chris. On #1, I would be getting 20% down payment which is well north of the 250k deduction. Does that not count towards the write off?

On #2, the reason to take a lower interest rate is that I get the price I want for the house (which would be difficult in this interest rate environment) and enable the buyer to purchase the home with lower monthly rates,  where he would not have been able to do so otherwise AND I still make a healthy return on the money until he refinances. He is the only potential buyer as he has the lease for another year, after which my 250k exclusion will have run out.

I am researching the servicers now - thanks!

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