I purchased 2 building lots as an investment in 2015. I’m financing it How do I file this? Do I wait until I make a profit? I have never claimed any of this on my taxes.

[Carl]

If you have not derived any income from the lots (empty lots I presume) then you have nothing to report on your 2018 tax return. Basically, you won't have anything to report to the IRS until you either sell the lots, or derive income from them by doing something such as renting them out.

Things like property taxes can be claimed on SCH A. But I think if you do that, then it's not investment property unless you do something other than sell them, to derive income from them. Not really sure on that.

As I understand it, if you claim the property taxes paid on the property in 2018 on SCH A, that makes it personal use property. Then if you sell it later at a loss, your losses are not deductible since losses on the disposition of personal property are never deductible.

Then as an example, if you were to sell the property in 2019 or later, in the year you sell you would claim all your past years property taxes as "carrying cost" for the investment, thus making them deductible from your cost basis.

[danielandruby928]

I was not able to post the full details due to character restriction. I have $68K invested into the two lots.

I recently sold them and I am “owner financing” them. (Two separate sales). Between the both of them I have received $49K in principal and interest payments.

So I still have made no gains. But I am due another 43K in monthly payments. 20 year loan.

Do I need to file this? Or do I still wait until I actually make a profit?

Thanks in advance!

[Carl]

You'll report your 2018 sale of the property in the Investments section under the Personal Income tab. Under Investments, select Stocks, Bonds, Mutual Funds, Other and work it through. When asked, you'll indicate that it's an installment sale.
"I recently sold them and I am “owner financing” them. (Two separate sales). Between the both of them I have received $49K in principal and interest payments. So I still have made no gains."
That's not entirely true. You have interest income to report that was received in 2018 and it is taxable. Even if you're not charging Interest, the IRS taxes you on what they call "imputed interest income" weather you agree with it or not.
For more information, please read <a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/tax-tips/tax-payments/irs-tax-rules-for-imputed-interest/L7UbulHpC">http...>

[TomD8]

"So I still have made no gains"

Are you sure?  Since you are financing the buyer, you have made an installment sale.  When you sell your property through an installment sale, you must report the capital gain as it is received. To figure this out, you must know the cost basis of the property. The cost basis is the amount you paid for the property plus any sales expenses and improvements. You then subtract the cost basis from the amount you sold the house for. For example, if you sold a house for $100,000 and you had a cost basis of $40,000, this gives you a gain of $60,000. If you spread the sale out over 10 years, this results in a $6,000 gain per year.
>>Note that the fact that you are financing the buyer has no relevance to the calculation of your capital gain.

[Carl]

While we're at it, let me throw in a "fair warning" here.
99% or more of all seller financed loans fail within 5 years when the buyer stops paying. So make sure you have your ducks in line for this, because changes are extremely high that you will be foreclosing on the sale sometime in the next 5 years, and taking back ownership/possession of the property.

[Anonymous]

the installment sale method of reporting is voluntary.  you can report the entire sales in 2018.  of course you would have to include in the sales proceeds the full amount even though it hasn't been received.   if using the installment method, you must report each property separately.       if a properties is sold at a loss the installment method can't be used for that property.  

[Carl]

"you can report the entire sales in 2018. "
While true, since chances are extremely high the buyer is going to default on the loan and you will end up foreclosing on it, that will create a tax nightmare you will never awaken from without professional help which you will have to pay for.

[danielandruby928]

Thanks for the responses everyone! You guys pointed me in the right direction. Turbo tax makes the installment sales pretty simple. I’m going to claim the profit as I receive it.

Thanks again!