Taxes... In Reference To Sub To'
I was just wondering what are the tax liabilities associated with SubTo' deals, short sales and land trusts. I ask this question because many times you can just assign your contract to someone else but when your third party pays for the house and you take you cut ... wouldn't you be responsible for the taxes on the final sale price.
For example:
If I sign an agreement for 100K and I sell the house for 125K, wouldn't I then be responsible for the taxes on the 125K even though I only pocketed 25K.
Can someone please explain to me what I will owe to Uncle Sam for completing these deals?
Thanks,
Ervan
Only your profit is taxable income to you. You contract to purchase for $100K then contract to sell for $125K. In this instance you would do a double closing; purchase for $100K and sell for $125K -- your taxable income is $25K.
You contract to purchase for $100K. You assign your contract to another investor for $25K. The investor pays you $25K, then completes the purchase under your original contract for $100K -- making the investor's total purchase price $125K. Your taxable income in this transaction is still $25K.