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Land Contracts In Michigan

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Does anyone know how a land contract effects the SELLER's position? I mean if I am selling on a L/C does this become a sale and therefore do I lose my tax benefits? If so, is there a way to structure a L/C so I keep the tax benefits.

 

I recently obtained a property and my exit strategy was planned to be a 12 or 24 month L/O. I have a couple of people who insist on just buying it outright. They are willing to give me my price, but will not consider a L/O of any kind. I don't want the have the gain taxed as ordinary income, since I've only owned the house < two months.

 

Any ideas???

 

Thanks,

Vito

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Vito,

A little confused here.

 

#1. How did you purchase/term the property?

#2. How are your buyers intending to "just buy" the property?

 

Trying to help here,

Adam

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Does anyone know how a land contract effects the SELLER's position? I mean if I am selling on a L/C does this become a sale and therefore do I lose my tax benefits? If so, is there a way to structure a L/C so I keep the tax benefits.

 

As far as the IRS is concerned, a land contract is an installment sale when you enter the contract. Even though title has not actually transferred, you relinquished all the rights of occupancy and the benefits of ownership to your buyer. The buyer has the tax benefits once the land contract is in place.

 

If you are flipping the property, then a land contract does not get the installment sale tax treatment. Instead, dealer disposition tax treatment will apply. In this case, all your profit (even though not received yet) will be taxed as ordinary income in the year of the sale.

 

 

I recently obtained a property and my exit strategy was planned to be a 12 or 24 month L/O. I have a couple of people who insist on just buying it outright. They are willing to give me my price, but will not consider a L/O of any kind. I don't want the have the gain taxed as ordinary income, since I've only owned the house < two months.

 

In this scenario, you are really just flipping property. The lease option is just a technique to facilitate the sale. The problem the IRS will have here, is that you do not demonstrate any INTENT to hold the property for a qualified investment use, but instead you are acquiring the property simply to "sell". It does not matter that the option may take a year or two to be exercised, if you are audited, the IRS will still see this as a dealer disposition when the option is exercised.

 

In the final analysis, if you are flipping property it does not matter whether you sell on land contract or with a lease option. The tax treatments are the same.

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