Will I have to pay a big tax after a sale?

[David Soest]

I bought a house, owner finance for 40K last year.

I've been living in the house and redoing it with my own money.

I hope to sell it soon for 100K.

I'll need to pay off the owner finance so I hope to walk out with 60K.

If I take 40K of the 60K and buy another house and keep 20K in reserve to do the repairs, will I have to pay a tax on the 20K?

[Bill Exeter]

There are two issues involved here.  The first is whether you actually own the property.  The second is how you finance the property.  In order to qualify for the 121 Exclusion, you must be able to say that you own the property and have lived in the property for two out of the last five years. If you lease the property with an option to buy or rent to own, you technically do not own the property and will not qualify for the 121 Exclusion. If you buy the property and actually own the property, then it will qualify for the 121 Exclusion. The manner in which you finance the property does not matter. So, if you acquire the property with owner financing it will still qualify. Generally, if you acquire the property through a contract for deed or land contract, you are considered to be the owner of the property even though you will not be on legal title.