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whitedove · May 12, 2011, 03:46 PM

I am owner financing a home. I bought it for 65.000. The owner agreed at 1% interest and now says she will get in trouble with the IRS if she does this can u tell me if this is true. She has the papers drew up threw a lawyer but did not tell me she changed the percentage rate

ballengerb1 · May 12, 2011, 03:58 PM

What exactly does she say the IRS would have to say about the rate you charge?

Fr_Chuck · May 12, 2011, 07:30 PM

One percent is very very low, Is this a family member you are selling it to.

Next why would "they get into trouble" Next why would the IRS know what percent interest.

You as the lender would provide them with a report of interest paid.

But if they want to pay you more interest, go for it,
I would assume you are doing the loan since they have poor or bad credit. So 8 to 10 percent interest is much more common on self loans.

And for good credit that 4 to 5 percent is normal.

So what percent do they want to pay now. And you should be happy they want to pay more

AK lawyer · May 12, 2011, 09:02 PM

Originally Posted by Fr_Chuck

... But if they want to pay you more interest, go for it,
...
... And you should be happy they want to pay more

I think OP is trying to say that he/she is buying the owner-financed property and the seller wants to increase the interest rate that OP must pay.

joypulv · May 12, 2011, 10:48 PM

I have done an intra family loan (within my family) and the IRS doesn't even allow us to charge 1%, so I can believe this is true. The rate for intra family is online and is set each month, and also varies by term. It's lower than a good mortgage rate, but not 1%.
The IRS will question home sales below market and rentals below market too (maybe not so much at the moment, but I've seen it done it good years).

ScottGem · May 13, 2011, 03:50 AM

For future reference, please reread an question before you post it. Your question is confusing. But Joy is correct. When a property is sold, it needs to be at reasonable price and terms, otherwise the sale may come under IRS scrutiny. For example, if you sell a home valued at $100K for $50K to avoid a capital gain, the IRS will take a look at this.

If you had an oral agreement but when you went to sign the papers and the terms did not agree with your oral agreement you can refuse to sign. If you had a written agreement and the final papers changed the terms, again you can refuse to sign. But it is certainly possible that the lawyer advised her that the IRS guidelines would not allow such a low interest rate.