Selling property question

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Selling property question


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Old 9th November 2019, 05:55 PM
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We have a small acreage in US, and would like to sell it. Because of the laws, it is suggested that we carry the loan for the buyers.

What kind of tax-reporting would have to take place for such an arrangement? Both Canadian and US taxes.

Anyone know?

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Old 12th November 2019, 01:48 PM
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DebL22 -- As far as U.S. Tax law, you have two pieces to deal with. I do not know about Canadian tax law. The first piece is capital gains. Assuming this property is not a personal residence that you have recently lived in (where capital gains would probably be exempt,) you'll need to report capital gains -- unless you are in the real estate business, you are not eligible to take a capital loss (say you sold the property at less than your "basis" in the property.) You have two options here: a. report the entire gain for the year of sale or b. treat the sale as an installment sale snd report the amount of principal paid on your note annually. There are trade offs for both options, depending on your "overall" reporting situation. The second piece is the interest you'll earn on the loan -- this is reported annually. Cheers, 255
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Old 12th November 2019, 03:02 PM
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I'd be a bit wary of the advice that you should carry the loan for the buyers. When I sold my house in the US (a LONG time ago, admittedly), the real estate agent had a potential buyer for the place, but she said that I would have to carry a loan for part of the purchase price for the buyer for some reason.

I turned down the offer, simply because of the difficulty of collecting should the buyer simply stop paying on the loan for any reason. As I told the estate agent at the time, at least if I were somewhere in the area and the payments stopped, I could drive by and throw a rock in the window or something. At a distance (and in another country) you have to think about what remedies you would have should the buyer stop paying you. (Not to mention the additional accounting for the loan interest on your part.)

Not saying here that you should automatically turn down the sale for this reason, but make sure you're very clear on what those "laws" are that supposedly are requiring you to take back a loan rather than selling the property outright and letting the buying deal with the loans on his or her own.
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Old 12th November 2019, 05:12 PM
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DebL22 -- I would echo Bev's concern. A cautionary tale: I have bought and sold properties with owner financing and had absolutly no issues -- except the one time I sold a property in the U.S. when I was living in South America. Perhaps because of my "good" experiences earlier, I didn't have much concern. I set up direct deposit for the buyers, at a bank in the town where the house was located and conducted communications by e-mail. Of course, the buyers didn't make the required payments, for various reasons, and me, the old softie, waved late fees and facilitated them staying in the house -- multiple times. After they got so far in arrears, that I didn't think they could ever make up their payments, I contacted a local real estate attorney (local to them) and eventually foreclosed on them. Of course, to stay my foreclosure, they immediately declared bankruptcy. All the while, they made zero payments; while retaining rights to the property. In the end, I was made whole (except perhaps losing the time value of the money I was owed and my attorney fees.) I can say, that the interest on private loans can be enticing, compared to low rates CDs pay today, and I would do it again, but I would certainly think twice, before doing a similiar deal, long distance. Good luck! Cheers, 255

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Old 12th November 2019, 08:10 PM
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You may also want to read up carefully on the impact of the Dodd Frank Act on seller financed loans. While a lot of the provisions may not apply because you are only planning on selling one property, it may be another point of consideration.

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Old 12th November 2019, 10:54 PM
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DebL22 -- Moulard is absolutely correct. Technically, you can no longer prepare your own private mortgage note (which was de rigor in the past.) Now, mortgage originators must be licensed. I've not been in the real estate business for years, but I suspect your RE agent would have a lead on a licensed provider that could originate the note, on your behalf -- if you ultimately accept this offer. Cheers, 255

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