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Tax Implications Behind 'Subject-To' Financing & Similar Strategies

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In today's rapidly changing real estate landscape, it's crucial for investors to adapt and find new strategies to succeed. With interest rates reaching levels not seen in over two decades, one strategy that has regained attention is "Subject-To" financing. In this blog post, we’ll explore what Subject-To is, why it has gained traction, and dive into some of the tax implications of using this strategy.

Rising Interest Rates

As of October 11th, the interest rates on a 30-year fixed mortgage have soared to over 8% for those with a credit score between 740 and 759. These high rates are causing a lot of deals to fall apart, making it essential for investors to seek alternative avenues.

What is "Subject-To" Financing?

Subject-To is a strategy where an investor purchases a property but leaves the existing mortgage in place. The buyer pays the seller an agreed-upon amount, which is the difference between the sales price and the existing loan. After taking ownership of the property, the buyer takes on the responsibility of making the mortgage payments to the seller, who in turn pays their lender.

Why Subject-To Investing?

Subject-To allows investors to effectively lock in lower interest rates. If someone bought a property at a 2.8% rate and had to sell for whatever reason, the new buyer could take over that property and the mortgage with its locked-in low rate. This saves the investor from having to secure a new loan at the current high rates, making deals more viable in today's market.

Who Are the Sellers in Such Deals?

Motivated sellers are often the key players in these transactions. Reasons can range from divorce and job loss to bankruptcy and other financial strains. For these sellers, Subject-To can be an appealing quick exit strategy, even if they have little to no equity.

Tax Implications

One of the most frequently asked questions about Subject-To investing is, "Who gets to deduct the mortgage interest?" The answer is the buyer, who is now making the mortgage payments. They get to claim the mortgage interest deductions, while the seller, who may still receive the 1098 mortgage interest form, must work out the mechanics to assign this benefit to the buyer.


Another common question is about depreciation. If executed correctly, the buyer, who is now the legal owner of the property, gets to depreciate it. Bonus depreciation can also be claimed as applicable.

Risks Involved

  • The Due-On-Sale Clause

Almost every mortgage has a due-on-sale clause, which means that transferring ownership without settling the loan can lead to the bank calling the loan. If this happens, both parties could be in trouble.

  • Contractual Agreements

It’s vital to have a well-crafted contract outlining who will pay and when, to provide a legal fallback should one party fail to hold up their end of the bargain.


Subject-To investing can be a powerful tool for real estate investors in today's challenging interest rate environment. However, like any investment strategy, it comes with its share of risks and tax implications. Before diving in, consult with your tax strategist and legal advisor to ensure you cover all your bases.

Interested in learning more about taxes in real estate investing? Contact us today.

Listen to this podcast episode here.


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Hall CPA PLLC, real estate CPAs and advisors, helped me save $37,818 on taxes by recommending and assisting with a cost segregation study. With strategic multifamily rehab and the $2,500 de minimus safe harbor plus cost segregation, taxes on my real estate have been non-existent for a few years (and that includes offsetting large capital gains from the sale of property).

Mike Dymski - Business Owner