Posted by James Buster on June 06, 2002 at 18:53:12:
One thing I can't seem to find info
on is taxation of note transactions
(buying, selling, exchanging for
property). Perhaps people in this
business consider it *obvious*, but
taxation is often not obvious (like
the dealer installment sale trap, which
I bet bites many a novice real estate
investor). Some examples are in order:Example #1:
Person owns $10,000 face value note.
Person sells note for $7,000 cash.
Has seller
a) incurred a capital loss
b) incurred an ordinary loss
c) no loss. Why?If (c), does that then imply that
the net gain against face value from
selling a 10% note for 8% is not
taxable income?Example #2:
Person owns 100K note they bought for
70K. Buys 100K house using said note as
consideration. Has the house buyer:a) incurred an immediate gain of 30K
b) incurred a deferred gain of 30K
c) incurred no gain. why?Thanks, James