Taxes on profit of Condo sale

[Leeswerge]

What is the name of your state (only U.S. law)? Nevada

I have a one bedroom condominium that is a Las Vegas rental. It is free and clear. I'm ready to sell it, but due to real estate agents telling me that banks just aren't loaning on condos, then I've opted to sell it "by owner" with full "owner will carry" with 20% down. That way I have a little cash now and can take back payments for ten years. My sale price will be $59,900. My base is $23,000 (from my purchase). How does capital gain work when I take $12k down and carry back paper on the balance? Do I wait until my base has been met in the future payments before paying tax on the balance or what? It would not be right to pay capital gains beginning with the $12k down, since it does not meet my base. I understand that I'll pay annual income tax on the carried back loan payments in future, but at what point will that begin, after my base is met, or right away? Before I get myself into a contract, I want to know what I will be facing for future taxes.

 

[FlyingRon]

The fact that you are financing the property doesn't really change it. The capital gains is due on the sale (what you paid less your basis and any capital improvements and expenses related to the sale). In addition, you should have been depreciating the property so you need to recapture that. If you've had the property for more than a year, you most likely qualify for the long term treatment. You then pay ordinary income tax on the interest (but not the principal or downpayment) portion.

 

[Leeswerge]

The fact that you are financing the property doesn't really change it. The capital gains is due on the sale (what you paid less your basis and any capital improvements and expenses related to the sale). In addition, you should have been depreciating the property so you need to recapture that. If you've had the property for more than a year, you most likely qualify for the long term treatment. You then pay ordinary income tax on the interest (but not the principal or downpayment) portion.

I get most of what you are saying, but if I pay tax upon sale for on a $36,900 profit, but only recived $12k down, but the balance is carried back, then isn't it double taxation since I will have to pay tax on the future payments as income? BTW, I had no loan on the property. I paid cash for it five years ago and rented it.

 

[tranquility]

I get most of what you are saying, but if I pay tax upon sale for on a $36,900 profit, but only recived $12k down, but the balance is carried back, then isn't it double taxation since I will have to pay tax on the future payments as income? BTW, I had no loan on the property. I paid cash for it five years ago and rented it.

You don't get taxed twice. If you elect out of installment sale treatment, you pay the capital gains up front and ordinary income on the interest portion of the payment.

 

[davew128]

Also factoring in is that the depreciation recapture gets reported and taxed in the year of sale, installment agreement or not.