Maximum Interest Rate on Related Party Land Sales

§ 483. Interest on certain deferred payments(a) Amount constituting interestFor purposes of this title, in the case of any payment—(1) under any contract for the sale or exchange of any property, and (2) to which this section applies, there shall be treated as interest that portion of the total unstated interest under such contract which, as determined in a manner consistent with the method of computing interest under section 1272(a), is properly allocable to such payment. (b) Total unstated interestFor purposes of this section, the term “total unstated interest” means, with respect to a contract for the sale or exchange of property, an amount equal to the excess of—(1) the sum of the payments to which this section applies which are due under the contract, over (2) the sum of the present values of such payments and the present values of any interest payments due under the contract. For purposes of the preceding sentence, the present value of a payment shall be determined under the rules of section 1274(b)(2) using a discount rate equal to the applicable Federal rate determined under section 1274(d). (c) Payments to which subsection (a) applies(1) In generalExcept as provided in subsection (d), this section shall apply to any payment on account of the sale or exchange of property which constitutes part or all of the sales price and which is due more than 6 months after the date of such sale or exchange under a contract—(A) under which some or all of the payments are due more than 1 year after the date of such sale or exchange, and (B) under which there is total unstated interest. (2) Treatment of other debt instrumentsFor purposes of this section, a debt instrument of the purchaser which is given in consideration for the sale or exchange of property shall not be treated as a payment, and any payment due under such debt instrument shall be treated as due under the contract for the sale or exchange. (3) Debt instrument definedFor purposes of this subsection, the term “debt instrument” has the meaning given such term by section 1275(a)(1). (d) Exceptions and limitations(1) Coordination with original issue discount rulesThis section shall not apply to any debt instrument for which an issue price is determined under section 1273(b) (other than paragraph (4) thereof) or section 1274. (2) Sales prices of $3,000 or lessThis section shall not apply to any payment on account of the sale or exchange of property if it can be determined at the time of such sale or exchange that the sales price cannot exceed $3,000. (3) Carrying chargesIn the case of the purchaser, the tax treatment of amounts paid on account of the sale or exchange of property shall be made without regard to this section if any such amounts are treated under section 163(b) as if they included interest.