In purchasing a park there is a large number of homes with a rent to own purchase option. I am looking for feedback on the best way to allocate a portion of the purchase price to this. Is there a way to avoid the sales taxes on the homes included with the purchase?
Not quite sure what you mean here, but I’ll take a stab at an answer…The RTO agreements should specify how much per month and for how many months a person will pay on the home to own it. So there really isn’t anything to ‘allocate.’ Don’t think of this as an installment sale. It is renting … until/unless they complete their stream of payments. Then you sign over title to them. They will pay the tax. They should put a reasonable purchase price on the title. The county may well adjust that anyway regardless of the price they write on the title.Cheers,-jl-
I’m also not quite sure what your exact question is, but here’s my attempt at answering it: If you are receiving titles on the rent to own homes as part of the purchase price, then you can allocate a part of the purchase price as going toward real estate and part going toward the trailers. You need the closing attorney to create a bill of sale for the trailers, showing the amount allocated for those, and then the remainder of the purchase price is recorded as the real estate sales price. Doing this will lower the deed stamp (or transfer) tax you have to pay at closing. It also creates a paper trail for you for tax purposes to depreciate the trailers as personal property over 5 to 7 years on your tax returns.
Thanks for the feedback. If I obtained a mobile home resale license would that preclude me from having to pay the sales tax at closing? Any thoughts on this? Thanks
Here are some other answers to consider:(1) Sales taxes and licenses are state-specific, so the answer would depend on what state you are in. (2) “Rent-to-own” looks like a disguised mortgage in many cases, and may be treated as such for regulatory purposes. To the extent what has been created is NOT a disguised mortgage, then you would be buying the actual home and whatever rules your state imposes for transactions of this type would apply. To the extent it IS a disguised mortgage, you are buying a “note” and not a “home” and whatever rules your state imposes for trading financial instruments such as notes would apply. In my experience (very limited!) there is no sales tax due on non-commercial transactions such as this one. In other words, unless you are a dealer who buys and sells homes in the ordinary course of business (holding them in inventory and not depreciating them), you would most likely be exempt from sales tax (check with your in-state lawyer to be sure!).(3) If you are not holding them in inventory, then, just for the record, trailers are dwellings for federal tax purposes and must therefore be depreciated over 27.5 years, regardless of the fact that they are personal property.Brandon@Sandell