Seller Concessions
If a seller was to give a buyer a concession of $5000 for closing costs would this be part of the gain that the seller would have to pay tax on or is this deductuble form the sales price. this home is not a primary residence or rental income what tax would need to be paid on the gain.
It is an adjustment to the sales price - you do not pay gain on a concession.
Just to clarify this house is not a primary residence it was a short term flip.
If the purchase price was raised from $100,000 to $106,000 to cover $6000 in closing cost for the buyer would this be an additional 6000 gain on the tax return
Does it make a difference if the house is owned personally or in an Scorp
Keep in mind as a flip, you will owe about 40-50% of your profit in taxes between the Feds and your state if you hold title to the property as an individual.
How do you avoid the self dealing though since you own the trust and the Roth (see my previous post since being edited)?
Why do you say that I own the trust?
A land trust can be set up with any party as the trustee and any parties as the beneficiary, right?
You purchase for $110K and option to your IRA for $120K. Your IRA sells the option to another investor for $140K. At the settlement table, your IRA gets $140K, than pays you $120K and keeps the difference in the IRA. You take your $120K and pay the bank $110K, keeping $10K for yourself.
In the end, the investor bought the property from your IRA which in turn bought the property from your trust. You get $10K and your IRA gets $20K.
I agree with finniganps. You appear to be selling the property from your trust (you are the beneficiary, so your trust) to your IRA (which you own, right), so I also would be concerned with the related party and self-dealing issues.
Why not simplify the whole thing. Get the short sale approved, then assign your purchase contract to your IRA. Now, your IRA can assign the contract to a third party and collect whatever assignment fee the market will bear.
finniganps, will this pass muster?
Well, two things:
1. Usually the bank will not allow assignment on a short sale
2. Why do I have to be the beneficiary on the trust? I was thinking that my brother in law would be the beneficiary.
I thought when you said that "you" were making the offer that this was a prohibited transaction. I just needed clarification.
Had the transaction gone forward the assignment of the beneficial interest to your Roth would also be a prohibited transaction and an excess contribution to your Roth.
Is there anyone brother,sister,BIN,or friend who has the financial capability to buy this short sale from the lender? Someone who could go all cash or qualify for a loan or borrow the majority of the funds from a hard money lender??
Assuming you sold the property to an independent 3rd party, it sounds like you sold it for FMV (I assume your realtor suggested teh sales price). Hire a CPA to assist with your taxes and present the question to them. This is worth the money to get an independent opinion.