Mortgages or other liens should not be allowed as exceptions to the ownership obligation, unless there is an agreement between the buyer and the seller on who is required to pursue payments and remedies in the event of non-compliance. The seller should be prohibited from continuing to encumber the property through mortgages or liens. A instalment payment contract is a purchase contract in which the buyer agrees to make a series of payments in exchange for goods or services on certain dates. Failure to make payments will result in penalties or legal action by the buyer or service provider. Hire-purchase and OTC transactions have been used for many years by unscrupulous operators to scam vulnerable populations. Pennsylvania`s Installment Land Contract Act (68 P.S. 902 et seq.) was enacted in 1965 to require the disclosure and regular accounting of payments for installment sales of residential real estate in all first- and second-class counties (i.e., Philadelphia and Allegheny counties). While this law may not apply to a particular transaction, an installment buyer would be well advised to include in the instalment payment contract protections similar to those in the law, in particular: disclosures that the installment seller must make; provisions relating to the regular accounting of sellers for the application of payments; and the limits of remedies to avoid the confiscation of previous payments. Instalment payment contracts can be used in the sale of goods and are provided for in the Uniform Commercial Code (UCC) § 2-612. Even if a contract contained a clause that “each delivery is a separate contract”, a single agreement on successive deliveries would still be considered an instalment agreement. The law also provides that buyers may refuse non-compliant rates in certain circumstances.
In addition, a non-compliant rate that affects the value of the entire contract may constitute a breach of the entire contract. The installment seller of properties that are not used in a business or business can choose a method of payment in instalments to report capital gains from the sale of real estate. IRS Tax Topic 705 provides an overview of the tax treatment of installment sales. IRS Publication 537 provides more detailed guidance, including the calculation of gross profit from the transaction, the percentage of gross profit to be applied to each payment, and revenues. The payments that the remittance vendor receives in each taxation year consist of three components for tax purposes: interest income (reported or recorded in the applicable federal rate), which is taxed at normal income rates; tax-free return on the adjusted basis of ownership; and the gain on the sale, which is subject to tax at capital gains rates. (IRS Publication 225 provides a detailed explanation of the tax implications of installment sales on farm properties.) Before entering into a instalment payment agreement, the buyer must be satisfied that the property complies with applicable laws and that there are no discernible conditions that may result in unforeseen costs and expenses. If the property is condemned in whole or in part during the term of the instalment contract, the installment seller and the buyer have the right to take back their respective shares in the property. An instalment agreement may require the parties to work together to achieve the full market value of the property acquired and to distribute the proceeds according to a mutually acceptable formula.
The instalment payment agreement or a memorandum of understanding must be registered immediately after signature. As a rule, a memorandum and not the entire agreement is registered in order not to publish the exact terms of payment or other private agreements of the parties. Land transfer tax is due when registering a contract for a deed or agreement on the sale of real estate on the basis of the full consideration paid under the contract. If the transfer is made to a nature preserve recognized as a non-profit organization under Section 501(c)(3) of the Internal Revenue Code, the transfer is an excluded transaction under pennsylvania Code § 91.191(18). Instalment payments will not be counted towards the amount offered. For both plans, tax on the full discount price (two-year contract) or total sale price (AT&T installment payment agreement) is due on the sale. In some cases, a conservation organization may prefer an installment agreement to the seller to withdraw financing, as individuals and institutions may be more willing and motivated to contribute to the purchase of a property than to pay off a mortgage on the same property. .