What are the tax implications on estate property sold via a land contract?

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What are the tax implications on estate property sold via a land contract?

I am the personal representative for my parents (both deceased) estate. While my mother was alive she sold her home to my niece via a land contract. My niece is now purchasing the home via a conventional mortgage, thus paying off the land contract. What are the tax implications that I am facing? The property was their only residence for 50+ years.

Asked on April 25, 2011 under Estate Planning, Michigan

Answers:

MD, Member, California Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

If your niece purchased a land contract while your mother was alive, those tax implications would have been settled at the time of the sale and the tax year in which it occurred. If the land contract was in essence already with the home on the property and this was so your mother retained ownership while financing it for your niece, then I am unsure as to the totality of the tax implications because it is not clear if your niece lived on the property. If your parents lived on the property for 50 years, there is no capital gains tax  but you need to check how the estate is set up (a trust, a will or both) and if in your state and federally, there are estate taxes on the sale of the property via a traditional sale to a party with a conventional mortgage as income to the estate as opposed to it being in any way shape or form considered a bequest or gift.


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