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fozzy
realtor/investor
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taxes
Monday, October 16 2006 04:35 PM
when we do a rent to own and get that option money up front how do we report that. i just did my first deal but now when i get money up front how should i report that in taxes. i have been told that i dont report that till the sale goes through or until the time expires. does anyone have any info on this. one more question i had was im about to sign a contract with a guy and i want to sell it for 15,000, what is the process of doing this? my contract is assaignable
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Randy Hughes
Master Advisor-39 years of experience
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Re:taxes
Monday, October 16 2006 04:46 PM
Foz,
1. Yes, you are right. You are not taxed on option money until the option is exercised or expires. Consider it an interest free loan. What a deal hu?
2. Sounds like you do not have to do anything else except find a buyer for your contract. Give your attorney a heads-up notice that you will be selling the contract and would he prepare an "assignment" form for you to use.
Randy Hughes
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fozzy
realtor/investor
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Re:Re:taxes
Monday, October 16 2006 05:11 PM
thanks randy but my account is thinking something else here. he thinks that i need to put that money into an escrow account and i cant touch it till the sale is final. what should i say to him or do you know what paperwork to use with an cpa
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Randy Hughes
Master Advisor-39 years of experience
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Re:Re:Re:taxes
Monday, October 16 2006 07:29 PM
Foz,
You need to get another accountant! He is wrong. Tell him to read the tax code before he gives out advice...he is embarassing himself. He is referring to the code relating to 1031 exchanges where the seller cannot receive "boot" or cash at closing without being taxed on it. If the sale proceeds are held in escrow, they can be reinvesting in a like-kind exchange and no tax will be due.
The tax code that specifically relates to real estate option consideration is CLEAR. Tell him to look it up.
Randy Hughes
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