Seller To Buyer Allowance
When I purchase a house and the seller offers "X" amount of money to me for repairs.
How is that money taxed?
Is there a limit to the amount of money I can recieve that way?
Thanks,
Chris
You are supposed to reduce your "basis" in the house when you sell. If you intend to occupy the house and will live in there for 2 years, it will most likely be tax-free to you. If it's an investment propety, you will pay capital gains taxes on that amount when you sell by subtracting the basis amount from your net sale price(basis = all the costs associated with acquisitions of the property and all the improvements you make to it afterwards).
For the sake of argument.
Seller lists house at 105k.
I offer 115k (still below FMV) and ask for an allowance of 10k. (assume no money down loan)
The seller did not have to pay tax on that 10k because by making it an allowance it raised his basis by 10k.
But I myself would start with a basis of 105k when I went to sell it?
Is this fraudulent? What keeps people from taking out slightly higher loans to have more cash on hand?
Assuming you did this with 20k / 30k allowance as long as the total mortgage remained under FMV and under 75% of gross/net rental.
Thanks,
Chris