My husband & I are in a sales agreement to purchase a duplex from an investor who just flipped this property- After having an inspection done, the seller has agreed to give us $2000 to pay for minor repairs. He wants to avoid captial gains so he said that he will pay us $1800 and give us a 1099 to put the burden on us to pay the tax for what he credits us. I didn't think this sounded correct - He's saying this because we have a HUD mortgage and it cant be rolled into the agreement. Can someone clarify how we should handle this incoming $2000?
2007-04-11 10:54:05 · 2 answers · asked by Dorrie J 2 in Business & Finance ➔ Taxes ➔ United States
That's considered a reduction in price -- it reduces your basis and his net proceeds. No 1099 is involved. If he sends you one, he's pulling something seriously dodgy, and probably illegal.
If your mortgage (or state law, such as in TX) don't allow a cash kickback then you can't do it, pure and simple. With a HUD mortgage there is a provision for handling repairs through escrow. The lender (and probalby your broker) are quite familiar with the procedures.
2007-04-11 11:18:23 · answer #1 · answered by Bostonian In MO 7 · 1⤊ 0⤋
This sounds very fishy. Why would he avoid capital gains if he gave you the money?
Let's say he bought the property for $150,000, then sells it to you for $180,000; His profit would be $30,000. If he now credits you $2,000 towards the repairs, his profit would only be $28,000 - so his capital gains would be lower. Is he giving you a signed contract saying that you will receive the money? Talk to you mortgage company and escrow officer and have them look at this.
2007-04-11 18:01:48 · answer #2 · answered by Bettina C 2 · 1⤊ 0⤋