[marywrobo]

My husband and I inherited his fathers house after his death in 2007. The estate value of the house was $29,500.00. In April of 2009 we sold the house on land contract for $31,000.00. What will the tax obligation be? Would this be covered if using TurboTax to prepare our return?

[Fr_Chuck]

You do not officailly sell the house till the deed is transferred, on land contracts ( first most land contracts never fulfill and are actually transfered) but you are still the owner of a land contract till it is paid in full and you transfer the deed.

[ebaines]

When the property is sold and deed transerred, your sale price of $31K represents a capital gain of $2K over your cost basis, which is $29K (based on the market value of the property at the time of your FIL's death). You report this as a $2K capital gain on Schedule D. And yes, TurboTax handles this quite well.

[MLSNC]

Generally if your land contract transfers the burdens of ownership (that is the buyer is responsible for taxes, insurance, repairs, etc.) then you have a reportable sale in 2009 whether the deed is transferred. You have the option of reporting it in full or as an installment sale. If my interpretation is wrong, somebody let me know.

[marywrobo]

Thank you for your answers. I appreciate you taking the time.:)

[Fr_Chuck]

In a land contract there is no money that exchanges hand, it is merely an agreement to sell the house at some time in the future.

Taxes can not be transferred ( or should not be) since the person "buying" is not the legal owner, the seller can add a fee to the contract to help cover those costs.

Insurance is a "sticky" issue, since the seller may often want to keep his own insurance on the home, since if insurance laspes from buyer he may be out everything, and the buyer can only insure the actual legal obligation he has.

Repairs can be included in the contract.

And you have to expect the contract to go into default, far over 1/2 never get completed,

As one who has sold dozens of homes on contract, the actual sale does not happen till the contract is completed. Since normally you end up evicting the buyers after it defaults and you stilll own the home

[ttremblay]

My father passed away Sept. 2008. (2008 was exempt from estate taxes) My brother has a land contract for the farm property. On the advice from our father's attorney he received his share 1/9th immediately and the rest of us is to receive payments. We chose to receive a payment one time per year until the Loan is paid in full. When asked of tax implication the lawyer stated only the interest income on the principle would be taxed. All eight of us received our yearly payment at the end 2010. I recently just received an email stating that not only interest was taxable but also the land contract payment. For myself, I pass any funds from the inherited property to a trust account for my three children. I never kept any money out for the tax on the principle because I was originally told that this amount was not taxable because this was inherited. I am told to report the amount on Form 6252 as installment sale income. Because my father was paying taxes on this income as he received it, we need to follow the same procedure and show .7361 of the income as installment sale income on Line 24. This percentage will always remain the same. Is this correct? And if so since I am passing it on to my children is this the correct way to do so? Will they have to pay tax on the principle amount I put into the trust if I've already paid tax on it? Any help would be greatly appreciated.