Tax Issues on a "Subject to" Deal
by Attorney William Bronchick
You buy a property "subject to" an existing loan. You sell the property on an installment land contract or lease/option. What are the tax ramifications?
Part One - Determining Your Basis
Your tax basis is basically what you paid for a property. If you have a seller $2,000 and took a deed subject an existing loan of $189,000, your basis is $191,000. Basically, your basis in a subject to is cash paid to the seller, plus existing loan you are taking over. If you also paid money for back taxes and mortgage payments, that would also be part of your basis. So, if in the above example you paid $3,000 to the lender to cure the back payments, your tax basis is $194,000.
Part Two - Figuring Out Yo...
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