Installment Sales Benefit Property Buyers And Sellers

Installment sales benefit property buyers and sellers. Your profit will be taxed at the current maximum federal tax rate of 15 percent for capital gains, plus state tax. However, the depreciation deducted after May 6, 1997, is taxed at a special federal "depreciation recapture" tax rate of 25 percent.

An installment sale spreads out your capital gain tax over the years you receive principal payments from the buyer. The buyer's promissory note is secured by a recorded mortgage. If the buyer defaults you can foreclose to either get your property back to resell for a second profit, or the high bidder at the foreclosure sale will pay off your loan in full.

The big installment sale benefit for you is that you will earn interest at a higher rate than you probably can obtain elsewhere with the safety of a secured interest, at least 6 percent. However, the interest you receive is taxed as ordinary income.

For your buyer, an installment sale means easy financing without having to qualify for a commercial mortgage loan. As a result, you can ask top dollar for your property and get it, thanks to easy financing.

You don't need a real estate agent because you already found a buyer. A real estate attorney can handle the sale details, including the required disclosures, sales contract, and closing details. Be sure to have a written agreement with the attorney as to the maximum fee.

Source: Miami Herald, January 23, 2005