I am coming in some cash - I lend money to a friend to invest in his primary residence. I also lived there but never claimed as my residence on my taxes. Now we are selling the place.Does anyone know what kind of taxes I will be paying (percentage)? Thanks
2007-06-01 07:24:15 · 5 answers · asked by TaxHelp 1 in Business & Finance ➔ Taxes ➔ United States
Whether the loan was done in writing or not, doesn't matter. What does matter is any amount over the original loan amount that you receive from your friend. Let's assume you loaned your friend $10,000. He sells his residence and pays you $15,000. You will owe taxes on $5,000 at your current income tax rate. Of course this is assuming you aren't on the mortgage.
If you are on the mortgage, and even if you didn't claim a deduction for mortgage interest and the place was your primary residence for at least two of the last five years, you and your friend are entitled to section 121 exclusion. Which means as much as $250,000 in profit is excluded from taxation.
In summary, if you're not on mortgage, you pay taxes on any extra amount your friend gives to you on the loan. If you are a part of the mortgage, you probably won't be taxed.
BTW, if you do owe taxes, don't try and get around it by claiming the amount is a gift. The original loan is what accountants call "consideration", which means the extra amount your friend gives to you can't be considered a gift. You might not get caught if you do, but an auditor may find it and then you'll pay a penalty.
2007-06-01 10:26:09 · answer #1 · answered by NGC6205 7 · 1⤊ 0⤋
Assuming that he just pays you back the principal balance of the loan you made to him, there are no tax consequences to you at all. Assuming that you were not a joint owner of the property you are only entitled to the loan balance not any of the gain on the sale so there are no tax consequences for you at all.
2007-06-01 09:18:19 · answer #2 · answered by Bostonian In MO 7 · 1⤊ 0⤋
Assume a note was signed for your loan to him. The principal loan payback is not taxable. As to the profit above the loan amount was this ageed to in writing as interest or profits or what? If in writing it is taxable as interest and/or capital gain. If not in writing call it an income tax free gift from him.
2007-06-01 07:39:44 · answer #3 · answered by spicertax 5 · 0⤊ 2⤋
If your name is on the title deed, then yes, you will have tax consequences.
If you name does not appear anywhere on the deed or purchase contract, or mortgage, , then you are home free.
2007-06-01 07:30:12 · answer #4 · answered by InspectorBudget 7 · 0⤊ 5⤋
I wouldnt even bother claiming it whatever it is. Noone is ever going to know unless you tell them.
2007-06-01 11:40:17 · answer #5 · answered by winetaster6 2 · 0⤊ 3⤋