Property Tax on a Seller Financed Deal

[Michael Caldwell]

Hi all- I’m in a unique / fortunate situation where I’ve found some older homeowners looking to remove the burden of managing a rental property that are willing to seller finance their property to me at $0 down and 1% interest on a 30-year note, no balloon. 

To get this, I’m paying them about 10% over asking price in total purchase consideration, but the terms and monthly payments are so favorable that it really doesn’t make much of a difference.

Although I’ve read extensively about these deals, this would be my first and my big question is around the taxable basis of the property. Does the basis remain in place since the seller would presumably hold the title until the payments are complete? Or does it step up to the purchase price number that I put on paper?

Additionally, if anyone knows good title / escrow folks and RE attorneys in LA county that could help me with this deal, that’d be fantastic!

[Jon Schwartz]

@Michael Caldwell, definitely consult with an RE attorney. I can recommend one to you; she helped a client of mine buy a home that was financed by the buyer's dad. This is similar, except the financing is coming from the seller.

But from my understanding:

You'll still be taking title to the property. The sellers will take a mortgage on the property. So you'll own it, and they'll be acting just like a lender. If you don't make your monthly payments, they can pursue a foreclosure and take the property back.

It's a sale -- albeit one that's financed 100% by a non-traditional lender. So you tax basis will step up to the sale price.

Good luck! And congrats on what sounds like an amazing find!

All the best,

Jon