Hi, we own a boat that we want to sell to buy a different boat. We have an interested buyer if we provide owner financing. He has proposed 30k down, $1150 monthly payments for 8 years and 20k at the 6 year point; he calculates that this adds up to a 160k offer. I have lots of questions but I guess my first one is, wouldn't we be paying income tax on this amount making it a $112,280 offer? Would the ideal scenario be to do a trade on another boat and get credit for the value of the boat (130k) and eliminate the hassles? Also, one more scenario is that a boat we are interested in buying is offering to do owner financing. Is there a way they could owner finance our boat for this interested guy, instead of us doing it and then lower their price to us by that amount? Info much appreciated!
If you get paid $160 K on an installment basis, and your cost basis is $80 K, then you will be paying tax on the capital gain (not on all the payments) and some of that payment money is interest which is current income.
I didn't calculate the interest on this note because there is so much data missing. However, on to your question.
Your interest earnings are reportable and taxable. However, with the exception of home mortgages, interest on loans is NOT deductable. You may have a depreciation deduction for your loss on the boat, though.
In any case, considering that we're discussing a six-figure transaction, it may be best to consult a tax attorney to finalize the bargain.
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