A taxpayer sold land through a purchase-money mortgage. In other words, in this case this was a mortgage issued to the borrower by the seller of vacant land as part of the purchase transaction. I could use a clarification of Form 6252 - Line 6 in relation to this situation. Is a purchase-money mortgage considered a debt the buyer assumes from the seller or is it considered a new mortgage to the buyer from the seller?
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Right from the instructions:
Line 6
Enter only mortgages or other debts the buyer assumed from the seller or took the property subject to. Don’t include new mortgages the buyer gets from a bank, the seller, or other sources.Uncle Sam, CPA, EA. ARA, NTPI Fellow -
The instructions are the source of my confusion. I honestly don't understand how the Form 6252 - Line 6 instructions relate to a purchase-money mortgage. Is a purchase-money mortgage considered a debt the buyer assumes from the seller or is it considered a new mortgage to the buyer from the seller? How does this work?Comment
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Just reading the instructions without understanding what the form is doing will not get you far.
Run the math on the form using the following: agreed selling price is 150K. Basis (line 13) is 80K. Since it's land we don't need to further complicate the matter with depreciation. Complete Part I and line 19.
Case 1: buyer assumes sellers 125K bank loan and agrees to pay an additional 25K to buyer over time.
Case 2: buyer assumes sellers 25K bank loan and agrees to pay an additional 125L to buyer over time.
Case 3: no bank loan involved- buyer pays 150K over time.
If you did the math correctly, you should find that over time the amount that goes to CG will be 70K (150K selling price less 80K basis).
Now run the math as to what would happen if you add the land contract amount to both line 5 and line 6. It should be readily apparent to you as to why this is NOT correct.Last edited by kathyc2; 05-03-2019, 09:26 AM.Comment
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