Installment Sale with taxes/insurance included

[Foxy-Lady]

Client sold his rental property to a relative under an installment sale.  The monthly amount if $550.00 It is broken down $300 towards the land contract $250 toward taxes and insurance that my client is maintaining.  I know how the $300 is handled. Can he write off the taxes and insurance as an expense. If so, where?

[dkh]

For writing off the taxes and insurance - which "he" are you asking about the seller or buyer ?

Seller would be receiving $250 to pay those taxes and insurance. Should be a wash.  I'd report on the Sched E or LLC or wherever he has been reporting this rental property in prior tax years.

Is the buyer keeping the rental property a rental property?  If yes, then yes paying $250/month for taxes and insurance is a deductible expense on Schedule E where all the other income and expenses would be reported.

[qbteachmt]

Is this an installment sale, or contract for deed or Rent to own?

You would not be able to insure something you no longer own.

You don't pay taxes on something you don't own. You sure don't write off the tax expense when it is not your taxes.

Perhaps he is passing on the tax and insurance portions, so that he knows the property is not at risk of loss or tax sale, because he sold it as installment, and doesn't want to lose the secured property? Or, he didn't bother to lien it?

And the installment sale will have principal and interest, of course.

I think some of this needs to be clarified.

[Foxy-Lady]

My client is a nice person.  This is a very close relative who he sold the property to.  The land contract was recorded. They pay my client $550 per month.  There is NO INTEREST.  $300 is to be applied to the sale of the property.  $250 is to be held to ensure the property taxes and insurance is paid this way the County could not sell it for non-payment of taxes. The Land Contract shows the payment to be $300 with no interest.  I hope this clarified it.

[qbteachmt]

No one is stating your client is not a nice person. Nice people often do not seek good guidance. They have the best intentions, but do not know how to follow the legal and tax requirements that apply.