Tax Write Off (Contract For Deed) HELP!
For those of you familiar with contract for deed.
My buyer has been talking to a mortgage broker. This broker says that it is impossible for her to write off the taxes from my seller financing unless she is actually on the deed and that it would be “illegal” if she did. I disagreed however; I couldn’t tell her why/how the broker was wrong..... How do I prove him wrong so she buys my house!? She is willing to listen to what I have to say because she really wants the place.
Its to my understanding that he is 100% wrong. Thoughts?
I just chatted with my attorney. He called the broker nuts then pointed out where in my contract is states that they will get the interest deductions.
Goose Man,
This has been discussed many times and the interest is deductable.
sammyvegas post:
"I see that this important (for the owner of a subject to property used as their PRIMARY residence) question has surfaced again..
1) The members should refer to a post in the Tax/Tax Strategies Forum dated
2/6/04 entitled, "Sub2 Interest IS Deductible.
2) There is a landmark tax court decision which should put this question to rest once and for all (OR at least for today). This is a United States Tax Court -Memorandum Decisions. (Belden v Commissioner) T.C. Memo.1995-360
Look it up.
I quote from the findings of fact and opinion
"Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness"
3) As I state in the above referenced 2/6/04 post . This is a “qualified residence" and the mortgage interest is deductible.
Just so everyone is on the same page, the post John refers to concerned the ability to deduct the mortgage interest by an owner-occupant who had acquired the property " Subject to". The individual had the deed to the property, used the property as his primary residence, and had been making the mortgage payments directly to the lender. I felt that the CPA was mistaken when she said, "No deduction for mtg interest".
I have bought most of my personal residences subject2 and deducted the interest expense. Through the years, I have wholesaled homes that I bought subject2 and the assignees have deducted the interest. I have taken subject2 ,put the property into a land trust and given the resident beneficiary the right to take the interest deduction. I feel that the interest can be deducted on transactions which meet the definition of a- Qualified Residential Property.
Let me specifically address the personal residence situation=. Qualified Residence:
1. The conveyance by deed immediately establishes legal/equitable ownership.
2. The owner has all the benefits and burdens of home ownership.
3. The owner can document that he is the pay or of the mortgage.
4. This is the owner’s primary and personal residence.
5. The owner has a contractual obligation to pay the debt.
The above ingredients define a Qualified Residence.
The IRC talks about “acquisition indebtedness”. My Purchase Contract recognizes the debt by lender, amount, and loan number. While I state that I’m taking the property subject2 the mortgage(s), I contractually (legally) state that as further consideration, I hereby agree to pay the monthly mortgage payments promptly WITHOUT RELIEF. Lastly, I contractually agree to payoff the existing loan and obtain new financing within a stated number of months of course; I also state that I as the pay or of the debt, get the interest deduction.
I believe that this indicates that I’m incurring the debt in acquiring the qualified residence. The debt is secured by the residence. I have a legal, contractual obligation for the debt, its repayment, etc,
There are those who think that in order to take the deduction a taxpayer needs to be directly liable on the note which secures the mortgage. That is not correct. I think that the conditions I have described above amply satisfy the requirements to take the interest deduction."
My buyers have deducted the interest without any problems using a Conract for Deed. Why a broker would even advise is beyond me.
John $Cash$ Locke
[addsig]
Well said John L,
When it comes to terms, benefits, rights and so fourth in a contract the "DEVEL IS IN THE DETAILS".
This is why each contract for deed, subject2, trust or any form of investing I have my attorneys form a contract that complies with state and federal laws.
It simply keeps free from getting room and board with a guy named "BUBA" and I'm a small guy!
Keep in mind that it only cost you once to have a contract formed to fit state and federal guidelines and you can use it on multiple deals!
Shoot its tax deductible.
Also look to IRC Sec 1.163-1(b): "Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness." Like John Michael said, it hinges on being able to show that you are an equitable owner.