Analyze my potential deal - seller financing and tax issues
All,
I am hoping to get some feedback here w/ potential seller financing (I am the seller). I am a lawyer by trade and am generally not too good w/ understanding tax numbers, etc. I will try to keep it simple - any feedback or thoughts are much appreciated.
- Original purchase price $170k w/ 1031 money
- Assume I have lived in property last 2 of 5 years now
- Assume no depreciation taken (i am not certain of this i would have to check past tax returns but assume this for now)
- Current market value: $170k (unfortunately this property has not seen any gain)
- Buyer proposes the following terms:
- Purchase price: $170k (market)
- Interest Rate: TBD (any thoughts?)
- Monthly P&I: TBD (not sure on this either)
- 5 year “balloon” buyer to refi to traditional mortgage
My (seller) motives for selling: no longer want to own, want to free up cash and avoid traditional closing costs.
My questions center around (if this makes sense)
- Do i face any tax on the down payment in the assumed scenario above?
- Do i face tax on the monthly interest?
- Do i face tax on the principal payment?
- Do i do an “installment” plan versus something else?
- Have i successfully avoided any potential 1031 issues?
- Is there ideas to structure the deal to avoid as much tax as possible on any portions of this scenario?
I really appreciate all of you and welcome any feedback. BTW - also seeking lawyer referrals familiar with drafting these types of purchase agreements/contracts. Property is located in Chicago, IL.
Maria.