Jim,
Listen, this thing has headed in the wrong direction. I do not want to raise any tempers or issues. I know of people that do this as well as forgive seconds and yes they are in the wrong. That is also fraud . All I wanted was an answer to my question I am sorry if I raised any anger. I with draw my question.
Two investors that partner on deals flip properties to each other to pull cash out at closing.
Example.
They find a property worth $65,000. And they can buy it for $30,000.
Investor one puts a contract on it to buy it for cash from the original seller for the $30,000.
Then turns around and gives investor two a contract for $65,000. Investor Two gets an 80% LTV with 20% down.
They go to close, investor one gets a check for $35,000. He gives investor two back his 20% down payment of $13,000. Plus they split the additional profit of $22,000 to the tune of $11,000. each.
So the question is, Investor one has given back a total of $24,000. Is there any way that investor one can write this off so he is not taxed on it? Or is he going to get wacked?
Yes, he is going to get wacked if he is caught. Investor one will get a 1099 and his tax return will will have to reflect the amount received. Investor two would have to be liable for gift tax since he was gifted over 10K in a year.
If investor one bought a discounted note from investor two at the right price then it would be difficult to unravel.
Jim,
I know its fraud, just like the proverbial due on sale cluase issue that everyone ignores but they still do it and risk it.
My question still hasen’t been answerd yet.
It may be borrowed money but the closing agent is going to send a 1099 to the IRS saying the property was sold for the full amount. What are you going to put down on the tax return?
OK, Point taken on the partnership. But what if they weren’t partners and it was just part of the deal.Then where does investor one stand as far as refunding the money back as far as tax issue.
I am not looking for solutions to structure this deal just an answer to the tax question.
Re: Hypothetical Tax question on Flips - Posted by SCook85
Posted by SCook85 on December 08, 1999 at 23:30:37:
Bud,
I honestly do not know how this would be handled from the tax man’s point of view. I’m sure that it won’t be to the benefit of the investors. I’d like to know the answer to this, if it’s favorable, my partner may become my best customer.