We sold and financed home to son and now he can’t pay for it
15 months ago my husband and I sold our primary residence to our son and we purchased a new home. We financed the property to and we recorded a contract for deed. We claimed capital gains on our 2006 tax return. Now son can’t pay for the house and is giving it back to us. How do we record the return of the property and how does this effect our capital gains. We still have an outstanding mortgage on the property as well. Now our plan is to try to sell the property or lease it. What is the best way to record the return of the property? How do we figure the basis for capital gains purposes when we sell it?
Capitol Gains on House Sold on Land Contract and Subsequently Repossessed from Buyer Due to Nonpayment
You need to be work with a tax lawyer or certified public accountant on such a complex tax scenario. I am not familiar with a “contract for deed,” which does not sound like a WI transaction. If you must resell the property at a loss after repossessing it, you may qualify for a capitol loss which could offset some of your capitol gain on the original sale. I am guessing that a foreclosure of a mortgage would be treated identically to a sale, but a land contract could be different, since you never truly gave up the title, but you really need to discuss this with your tax expert.
Jay K. Nixon
NIXON LAW OFFICES
333 South Main St, 262-633-3090
Racine, WI 53403