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Tax Law (Questions About Taxes)/Owner financing & capital gains


I have owned a piece of unimproved property since 2007. I plan to sell this property in order to reinvest the money into the purchase of a primary residence. The prospective purchaser is interested in having me finance the property for him (owner financing). It is my understanding that capital gains taxes can be avoided if money from the sell of property is reinvested in another property. How will owner financing impact capital gains tax in this instance?  Also, will interest income earned through the owner financing be taxed as ordinary income?

I am presently in the process of purchasing my new primary residence and will be placing my old home on the market for sell in early 2015. Proceeds from my old home will also be reinvested in my new primary residence. I am a resident of Virginia and all properties are located in Virginia.

Thank you in advance for any insight you can provide.

you cant exchange and sell on your own.  to avoid tax you need an intermediary (called a 1031 exchange - google it)  and you cant buy personal residence on the other side (have to be like kind property = same type).

you will defer gain under the installment process.  recognizing as you get paid.  pro rata.  and yes, interest is taxable as ordinary income.

so, unimproved property is just sold at a gain.  period.

you can exclude up to 250k (double if married) on the sale of old residence - regardless if you roll into new property or not (old rule which required roll over changed to 250k allowance about 15-20 years ago).

if it was your principal residence for 2 of last 5 years. and some other rules, but generally easy to meet if you lived there as your home.

you need a cpa ... want more help?  want me to do your 2014 taxes?


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Tax and general business including hospitality related (hotel mgmt degree and experience in industry prior to obtaining ms tax and cpa).


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