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Capital Gains On Sale/Seller Financing 2nd Home

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California, My 83 year old parents want to sell their completely paid off 2nd home and carry back financing. The purchase price is $400k with a $20k down payment. 2 year fixed at 5.5% then converting to an adjustable. They currently have a fixed income of $38k a year and pay no federal Income tax. My question is what would there Capital gains percentage be and can that be spread over the life of the loan??
Thanks In Advance
Al
 


efflandt

Senior Member
If they lived in the home at least 2 yrs (730 days) of the past 5 years they could get a $500,000 capital gains exclusion. If not, the capital gain would be sale price minus their cost basis (purchase price and any improvements).

However, if they owner finance, they can spread out the gain as an installment sale.

See http://www.irs.gov/taxtopics/tc701.html
 

FlyingRon

Senior Member
They speccifically need to have lived in it as their PRINCIPAL residence. Just aggregate vacation usage that adds up to 2 years doesn't cut it.

The loan has no bearing on the capital gain.

The capital gain is the difference between what they purchased it for plus any capital improvements they made over the years and what they sell it for.

It would effectively be the sales price less $400,000 (and any costs of the sale).

The property, if owned for over a year, would qualify for long term gains and perhaps based on your parents income might qualify for even lower than the 15% long term rate.

I don't have any clue what you mean about "spread over the term of the loan."
 

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