I need help as we are looking at buying family property and the seller is wanting to do owner financing at 0% inorder to keep the property in the family. Is this doable or does it create problems for the buyer or seller from a legal/IRS perspective? We would have a contract drawn up but don’t want unintended consequences down the road for either party.
Announcement
Collapse
No announcement yet.
Owner financing property at 0%?
Collapse
X
-
Originally posted by hillcountryhunter View PostI need help as we are looking at buying family property and the seller is wanting to do owner financing at 0% inorder to keep the property in the family. Is this doable or does it create problems for the buyer or seller from a legal/IRS perspective? We would have a contract drawn up but don’t want unintended consequences down the road for either party.
-
There is a stated minimum rate that can be charged and anything less than it is considered forgiven loan (income) to the borrower. Look it up. It's pretty low though - a lot lower than a bank would charge.
They also can't sell you land for $1 to avoid inheritance tax. All kinds of rules on family to family transactions.
This is not tax advice nor should it be taken as such.
Comment
-
Originally posted by BitBackShot View PostThere is a stated minimum rate that can be charged and anything less than it is considered forgiven loan (income) to the borrower. Look it up. It's pretty low though - a lot lower than a bank would charge.
They also can't sell you land for $1 to avoid inheritance tax. All kinds of rules on family to family transactions.
This is not tax advice nor should it be taken as such.
Comment
-
I would think there is nothing illegal on your end if someone in the family wants sell a piece of property at 0% interest- lending institutions charge interest to cover their costs for financing. If the other party doesn't report it as a capital gains I would think they can be in a bind with the IRS.
Comment
-
As stated, there is a minimum rate set by the IRS; I believe it's called the Applicable Federal Rate. Oh and this type of thing was developed to specifically deal with related party transactions, just like the one the OP described.
My advice is to consult with a CPA. More than likely, they will have you draw up a note agreement meeting the AFR requirements and give you advice on an outlet. For example, you could pay interest on the note, then have the other party gift the interest back to you.
I'm sure there are ways around it. However, ignoring it probably isn't the best option.
Comment
Comment