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I went into contract on this deal with the owner financing at 0%
for 15 years. Then I read the IRS Imputed Interest Rules“IRS imputed interest is interest that the IRS creates on a loan, and taxes the lender on, even if the lender is not actually collecting interest. For example, if you lend your daughter $20,000 to be paid back over five years, interest free, the IRS will impute an interest rate on the loan and tax you as if the imputed interest were actually being collected by you as income. For many reasons, then, it makes sense to charge a minimal interest rate on all loans, including loans made to trusted friends and family.”
Link to the article:
http://www.ehow.com/about_5097624_irs-imputed-interest-rules.htmlI wonder if anyone who have done the owner financing deal with 0% can give me some advice on this. Is there anyway to get around that?
I think it is legal to do 0% financing (many car dealers offer that when the economy is bad). However, in my case, the seller might be taxed by the IRS and he might come after me on the 0% financing.
(On the contract, I just put down the sales price and the payment
schedule, I didn’t mention anything about 0%)I also read this somewhere on the web:
“You could also buy a certain % interest in the property initially with a recorded option on the rest. A good RE investor (and his attorney) works through those stupid laws to get what he wants legally.”Anyone can fill me in?
The bottom line is I don’t want to be backfired by the imputed tax down the road.
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