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House SOLD or NOT Sold ????

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    House SOLD or NOT Sold ????

    Client states that they SOLD their 2nd home. (bought it 2 years ago for Mom to move into next door) … Mom had other ideas, changed mind and went West ….

    Client has mortgage on this 2nd home and tells me that they sold it. BUT … they are holding the mortgage on it for the buyers. They have a contract written by lawyer states that the buyer has 3 years to obtain mortgage from bank and if they do not get one from the bank, they must move from the house and will not get any refund of monies paid.

    The house is remaining in my client's name. The "Buyer" is paying a monthly amount on the house which is the amount of the mortgage payment that my client has plus interest plus escrow amount to pay the real estate taxes.

    MY QUESTION is ….. This house is NOT considered sold is it when it is remaining in my client's name??? But do they have to claim the payments received as rental income ??? It isn't rental property either … it is more like a rent to own house that the buyer may or may not actually get to buy….

    Do I just maybe CLAIM INTEREST INCOME only ????? The principal part of the payment from the "Buyer" equals the monthly mortgage payment that my client "the seller" pays.

    What are your thoughts on this ??????

    If they would have simply sold it and been done with it …. There would have been NO gain or loss … they just wanted out and are selling for the same price they bought it for. But unfortunately …. This couple couldn't get a loan so this is what they ended up with.

    I do not see this as a sale because the property is NOT changed to new owner on the deed. And if It was a sale … what would happen 3 years from now when they still didn't get a loan and they had to leave the house.
    "And So It Begins!!!"

    #2
    House Is NOT Sold

    You are correct - the house is NOT sold until the closing takes place and the title gets transferred.
    What you have right now is a wrap-around-mortgage for a tenant renter. You are correct - that the interest received as part of the mortgage payment from the tenant is interest income.

    So how your clients claims the "house is sold" I don't know. They are under a misconception because of the buyer ATTEMPTING to buy.
    Uncle Sam, CPA, EA. ARA, NTPI Fellow

    Comment


      #3
      Thanks

      Thank you for agreeing on that with me ....

      I need that extra little push to tell my brain I know what I am doing still

      I am still wondering tho about the "principal" part. Do I need to turn this into rental property ???

      *******************************

      I sure am glad that I don't have *The Buyer* as a client .... I can only imagine what that is like ..... The Buyer saying "I bought a house ... I want the $ 7500" *egads*
      although the $ 8000 this year sure would be an incentive to get that bank loan and buy that house this year .....
      "And So It Begins!!!"

      Comment


        #4
        Sounds like

        a "bond for title". You should check with legal counsel who handled this to determine
        whether a sale was perfected or not.
        ChEAr$,
        Harlan Lunsford, EA n LA

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