Posted on: 27th Mar, 2009 04:15 pm
My children have been living in a rental property of ours for the last four years. They would now like to buy the property, but cannot afford full market value. The rent they have paid over the last four years, when added to the cost they can afford to pay, will equal fair market value. How do we structure a below FMV sale to them and minimizing tax consequences for us? For example, they can afford roughly 75% of the FMV of the home, which is worth roughly 10 times what we paid for the home 25 years ago. I will use the money to invest in another rental.
Hi millst
Though your children would pay only 75% of the present FMV of the property, you would still be liable to pay the capital gains tax on the amount of profit you incur on the sale of the property. This is because you would be receiving 10 times more than the amount you paid when you purchased the property 25 years ago.
However, if you want to minimize the taxes, you can go for an installment sale. It is a process wherein at least one payment for the sale of property is received after the tax year of the sale. This can be profitable because if all the gain is incurred in a single year, the seller has a heavy tax burden.
Thanks.
Though your children would pay only 75% of the present FMV of the property, you would still be liable to pay the capital gains tax on the amount of profit you incur on the sale of the property. This is because you would be receiving 10 times more than the amount you paid when you purchased the property 25 years ago.
However, if you want to minimize the taxes, you can go for an installment sale. It is a process wherein at least one payment for the sale of property is received after the tax year of the sale. This can be profitable because if all the gain is incurred in a single year, the seller has a heavy tax burden.
Thanks.
Take the advantage of selling your own rental house because as what you said they are renting the house for almost 4 years and thats a good reason for you to trust them.
yes, indeed..."take the advantage."
after all, "that's a good reason for you to trust them."
i am alarmed, people.
after all, "that's a good reason for you to trust them."
i am alarmed, people.
Make an agreement to sale of the property and fix up the amount and the period to be paid.
this will help you take the profit in parts and may be you are exempted from tax.
this will help you take the profit in parts and may be you are exempted from tax.
boy oh boy, it only gets better, doesn't it, children?