How To Split Tax Liability With Flip?
I recently did a flip with a silent partner. We both came up with 50% of the downpayment and expenses. We did not do any work to the property Although, the mortgage and title were only in my name. The profits are going to be split 50/50. What is the best way to handle the income tax that will be due since it will be under my fed id #? Do I issue him a 1099 at the end of the year? or do I figure out my tax % and take that out of his cut now. Thanks in advance for any advice.
1099 is less hassle and less argument
Hi All ,
I would love to hear some more views on this post. I am thinking of doing this same type of deal.
[addsig]
Thanks for the response.
My thought was to have the partnership do the rehab and charge me cost + profit equal to the gain on sale, which would leave me zero profit[ Edited by cansley on Date 08/21/2006 ]
Just draw up a simple Joint Venture Agreement. Even though you received the full amount, you would only report your legitimate half of the expenses and profit. Some escrow companies will split it for you. You should then file a partnership return together; however, with a Joint Venture, there is no penalty for NOT filing a partnership return providing all parties to the Joint Venture accurately report their income.
[addsig]
Have your partners profits put on the settlement statement (HUD1) at closing. That way you each get your own proceeds check at closing.
I have a HUD1 on an excel spreadsheet and have started making my own HUD1 even for Subject to deals signed at the kitchen counter. Just wrote a HUD1 for a house that my LLC purchased from me personally.
My partner and I had a joint venture agreement , and I was the cash partner , he was the credit partner ( Loan was in his name ) , So we were told for him to issue me a 1099 int , which would show my half as interest on my cash that I put up.
All the re-hab was paid for with the cash I put up , and he has all the recipts so he could add that to the basis of the property when he files his taxes.
[addsig]
Yes, you pay taxes on the total $55K gain -- some now, some later.
You have an installment sale. You will receive $25K at settlement and hold a note for $30K, All principal amounts received this year will be taxable on your 2006 tax return. The balance of your principal and any interest income you receive will be taxed in the year it is received.
Additionally, if this property was a depreciable investment property, then your profit is first applied to unrecaptured depreciation and taxed at 25%. The long term capital gains tax rate applies to the balance of your sale profit as it is received.
Interest received on the note you hold is taxed at your ordinary income tax rate.
thanks everyone