We are putting our primary residence on the market this year, with a healthy amount of capital gains that should be excluded from Federal tax. If we take back a private mortgage on the sale of the home, I understand that we will be taxed on the interest paid to us for that loan, but will it complicate the capital gains exclusion?
IP
Will you also have non-excludable gains, like recaptured depreciation because the home was used as a rental, or gains in excess of the exclusion amount?
It depends on what you mean by ‘complicate the capital gains exclusion’. It’s more complicated than just reporting the interest that you receive on the mortgage, but it’s the fact that you are holding a mortgage that makes it more complicated, since you will have to report the sale as an installment sale, not the fact that you are claiming the exclusion. From IRS Pub 523 2024 Publication 537:
You can choose to opt out of the installment sale method. See IRS Pub 537 2024 Publication 537 for details on how to do that.
AJ
No.
Thanks. A place to start. Would like to keep it as simple as possible.
IP
