I'm selling a rental house and will hold a $26,000 private second mortgage for the buyers. Will the government tax me on this as money I received at the closing? Even though it is just paper? Or will I pay captial gains on any amount above my basis only when I get the payments from the purchaser? Basically, does taking paper look the same to the IRS as getting paid in cash?
When I did this, my accountant counted full amount as though it was a capital gain right then. In the future years, I paid taxes on the interest I received.
Don't forget, what you're taxed on is the difference between what you paid for the property and what you sold it for. Legally, the total selling price includes the 2nd mtge amount, so I can't imagine they'd do it any other way.
May 18th, 2006 at 10:28 pm
When I did this, my accountant counted full amount as though it was a capital gain right then. In the future years, I paid taxes on the interest I received.
Don't forget, what you're taxed on is the difference between what you paid for the property and what you sold it for. Legally, the total selling price includes the 2nd mtge amount, so I can't imagine they'd do it any other way.
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