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<blockquote data-quote="Arnold Ziffle" data-source="post: 499838" data-attributes="member: 43"><p>BTR, I seem to recall reading that you recently paid off your land note, so what I'm about to suggest may have limited potential benefit to you. But as to a sale with 0% stated interest, first of all, don't you suppose that the little old lady in effect jacked up the sales price a bit in order to compensate for the fact that she was charging no interest? I's suggest that you talk to your accountant about the "imputed interest" rules. The tax code has provisions that would allow you to deduct a portion of your payments as interest expense since the sales contract did not have "adequate stated interest". In addition, if they discover what she has done (not too likely, I'll admit) the IRS could turn the tables on the little old lady and make her report a portion of the payments she received as interest income and not as principal (capital gain). The "adequate stated interest" rules are in the tax code to prevent sellers from structuring sales that are purportedly all capital gains and no (or insufficient) interest income --- sellers obviously want to maximize capital gains and minimize interest income due to the considerable difference in tax rates associated with each type of income. On the other hand, purchasers would normally like to maximize interest expense deductions and minimize the part of their payments that are treated as non-deductible land cost.</p><p></p><p>Even if your land is paid off you could still consider filing amended returns for all the years that are open under the statute of limitations, in order to claim interest expense deductions IF you and your accountant deem it worth the time and trouble and after considering other issues that may or may not be lurking in your tax filings.</p></blockquote><p></p>
[QUOTE="Arnold Ziffle, post: 499838, member: 43"] BTR, I seem to recall reading that you recently paid off your land note, so what I'm about to suggest may have limited potential benefit to you. But as to a sale with 0% stated interest, first of all, don't you suppose that the little old lady in effect jacked up the sales price a bit in order to compensate for the fact that she was charging no interest? I's suggest that you talk to your accountant about the "imputed interest" rules. The tax code has provisions that would allow you to deduct a portion of your payments as interest expense since the sales contract did not have "adequate stated interest". In addition, if they discover what she has done (not too likely, I'll admit) the IRS could turn the tables on the little old lady and make her report a portion of the payments she received as interest income and not as principal (capital gain). The "adequate stated interest" rules are in the tax code to prevent sellers from structuring sales that are purportedly all capital gains and no (or insufficient) interest income --- sellers obviously want to maximize capital gains and minimize interest income due to the considerable difference in tax rates associated with each type of income. On the other hand, purchasers would normally like to maximize interest expense deductions and minimize the part of their payments that are treated as non-deductible land cost. Even if your land is paid off you could still consider filing amended returns for all the years that are open under the statute of limitations, in order to claim interest expense deductions IF you and your accountant deem it worth the time and trouble and after considering other issues that may or may not be lurking in your tax filings. [/QUOTE]
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