Questions about rent to own...capitol gains, income tax etc.

Question

I am considering to a rent to own - renting my house to someone else. If I do this and they do not close the sale and actually transfer the deed within 3 years (meaning after this time I will not have lived in the house for 2 of the last 5 years) will I still get my capitol gains tax exclusion (to the $ limit)?

If I do this and the "renter" is making accelerated payments, thus I am ending up with rental income at the end of the year that also is paying down the house resulting in additional taxes?

Are there reasonable ways to address this, as in these troubled financing times, options like this may come up more frequently?

Answer 1

1. If yu dont liv theer 2 av last 5 yeers, yu dont get brake on inkum tax.

2. Legally, its lees tu oen...Em gotta sine legal papers.

3. lees tu oen is 1 wae tu get around bad times...yu kant sell hous & potenshal bier kant get morgage.

4. yu thank theer will be kapital gaens????

5. "paeing down the hous resulting in more taxes"...I dont understand the quesshun.

Answer 2

You have multiple questions.  

If you do not sell the house within the 3 years you will have no capital gains exclusion at all.   You are selling income property and you have to pay full tax.

The only additional tax you have with renting is income tax, you have to claim the rent you receive on your income tax return.

The odds of this actually going to closing are pretty close to zero.     I am fairly mature in years and I have yet to see one of these things work out.