Question from John Evola:
I just bought a duplex for $45,000 and I'm planning on selling it on a Land Contract for $60,000 with $6,000 down payment and carry the balance with a balloon due in 24 months. My question is...Do I have to pay taxes on the $6,000 down payment this year or can I pay when the balloon is due?
I have a first on it for $45,000. I was told that I could apply the $6,000 to the initial cost of the property of $45,000 and bring it to $39,000.
Answer By William Bronchick:
On an installment sale, you pay taxes on the gain on a pro-rata basis as it is received. Thus, you will pay taxes on the $6,000 you receive in the first year, plus taxes on payments you receive this year (pro-rata gains tax on the principal and ordinary income tax on the interest).
Disclaimer: The foregoing is not intended to be given as legal, financial or tax advice, but intended for instructional use only. If you require legal, financial or tax advice you should seek the assistance of a qualified professional.
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