Selling Land Contract Interest

Any interest income a person receives when selling his home through a land contract is reported as ordinary income.

Selling land contract interest.

Any part of the stated selling price of an installment sale contract treated by the buyer as interest reduces the buyer s basis in the property and increases the buyer s interest expense. A land contract is a form of seller financing. When selling a home on land contract the seller acts as the private lender. Land contracts are useful instruments for sellers who are selling a home and contemplating carrying the financing for a buyer.

With a land contract the buyer does not get full ownership of the property. Selling your home with a land contract. The interest rate is negotiated between a seller and a purchaser sometimes with state limits. It is similar to a mortgage but rather than borrowing money from a lender or bank to buy real estate the.

The buyer provides down payment and makes monthly installment payments to the seller for an agreed upon period of time at an agreed upon interest rate. Meaning the borrower makes mortgage payments on a 15 30. To the irs all interest income is the same whether from land contract home. A land contract is a contract between a buyer and private seller for real property that has a home on it.

A commercial buyer by contrast may favor a land contract acquisition to reduce the initial amount of capital that must be invested to acquire real estate to wait for a later date to obtain an traditional loan to pay off the land contract e g if interest rates are expected to decrease or the buyer s credit will improve in the future or. A land contract is a written legal contract or agreement used to purchase real estate such as vacant land a house an apartment building a commercial building or other real property. The buyer is an owner but they only get equitable title of the property. A land contract or contract for deed is a type of installment sale in which a seller agrees to sell the property to a buyer over a period of time.

These rules don t apply to personal use property for example property not used in a trade or business. Interest rates on land contracts typically are higher than on conventional loans. The sale of the property in question is quicker without the banks getting involved. Usually land contracts are done on a 3 5 year balloon.

Selling your home with a land contract has a lot of benefits attached to it. Additionally if you factor in interest into the payment schedule you are earning that money as pure profit over time.