Creative Sales Idea For Taxes.......Opinions?
In my disheartening frustration at an ever growing potential tax burden, I have some ideas i want to run past the gurus and see where my tax strategies will fail hopelessly. While reading the archives of this forum, I have wracked my brain to come up with an idea that would alleviate the complexity of the multitude of tax problems that sellers of property on a CFD/LC seem to have.
Why can a person that is thinking of selling mobile home "land/home" property on a simple land contract not simplify this greatly? Can a person, (or single person LLC entity), simply draw an agreement up, (signed and notorized by both parties), that states that a buyer will be "renting" the property for "X" dollars a month for "X" number of years. Have the agreement be called a "rent to own" agreement and have it state that if they leave before that time, their option to buy is forfeited.. Have these numbers correspond exactly to a amoritization schedule set up separately. In the agreement, have it state that "when renter pays $X for 12 months a year for 20 years, they can then option to purchase the property for $1000 and seller will sign their interest off the deed at that time". Also put in the agreement that since "renter" is being offered this option to buy if they pay rent for the terms outlined, that all maintenance is to be dealt with by the "renter". Buyers are offered no mortgage interest write-off at tax time.
If worded properly, would this not avoid the huge and complicated 31% tax bracket that the "dealers" seem to be getting hit with and the entire 20 year transaction would be treated as simply rental income for those years the " renters" paid their rent? What would happen when the $1000 option was exersized and deed was transferred? Would tax be then owed for that year for the years "rent" payments and the $1K and that's it? If taxes have already been reported and paid for 20 years on the "rent", then what other tax would be due if the agreement stated that "owners will sell all interest on Special Warrant Deed to renters for $1000 at the end of this "rental term".
Please tell me that I'm onto something here!
GWBush...PLEASE simplify this mess.
You are on to something. The IRS is also onto this strategy and they will call this a disguised sale.
There is no 31% dealer tax bracket. Profit from a dealer disposition is taxed as ordinary income at whatever tax bracket applies, whether 10%, 15%, 25%, 31%, or 36% (or whatever the brackets are today). Self employment income taxes add another 15.3%, and if the state has an income tax, they get their bite too.