Who Paids For Taxes On The Purchase Price?
Here is the question: The Seller wants to sell his property the $100,000, but the ARV is $150,000. Could the seller write the contract for $150,000 and give the proceeds of $50,000 for decorating expense or whatever. Who paids the taxes on the $150,000. Does the seller 1099 the buyer for the $50,000? Please help
You could write the contract two different ways
urchase price is $100K with no seller concessionsPurchase price is $150K with $50K seller concession for repairsThe net sale price is $100K in each case, with the same tax consequence for the seller.
So let me get this right, the Seller will pay taxes on the $50,000 or whatever they give to the buyer. So the buyer has $50,000 in tax free money? How do you convince the Seller to do this?
Taxes deal with NET...not gross. $150K would be the gross amount. $100K would be the net amount. Taxes would be calculated on $100K.
Are you sure the lender will allow $50K in seller consessions?
The lender will only loan the purchase price or appraised value - which ever is lower. And the Settlement Statement must be approved by the lender prior to funds being distributed at closing. The lender will not allow you to get 50k of THEIR money to decorate. It is possible that you could get some money in escrow for specific repairs such as a new roof. But, the lender will not allow you to take out a 50k personal loan for any purpose of your choosing.
Since you did the 1031, you must show intent on keeping it as an investment property. "Intent" is not clearly defined but most experts on this board say it should be at least a year.
As for converting it to a primary, as soon as you move into it, it becomes your primary. You can not sell it as a primary though, until you have lived in it for 5 years.
Sound good NewKID & wexler???
DontAskWhy - you are almost on the money. There are three requirements that you must follow if you are attempting to take advantage of the Section 121 Exclusion AFTER you have acquired the property via a 1031 exchange. These three ONLY apply when converting a property to your primary residence that was originally acquired through a 1031 exchange.
The three requirements are:
1. RENT the property for at least 12 months in order to qualify for 1031 exchange treatment.
2. LIVE in the property for 24 months in order to qualify for 121 exclusion.
3. OWN the property for five years (not live in it, but own it for five years)
[addsig]
Oh,
I was under the impression that the rule changed for properties acquired through a 1031. I thought last year they passed something that changed it to where if the property was acquired through an exchange, you must live in it for 5 years instead of the normal 2/5 scenario.
The law did change on October 22, 2004. It created a five year HOLDING requirement, but the two year LIVE IN requirement was not changed.
[addsig]
Wow,
Thank you. Now that you mention it, I remember reading it that way. Thanks for the correction. That is why you are the boss.
Marc
I have seen the discussion between Marc and Bill on conversion of 1031 exchange property to a primary residence and need some advice.
My wife and I have a second home in Florida that we bought back in March of 2001 with the intention of fixing it up and moving in to it but never did as I lost my job that year and had to move from Florida to Reno, NV for my new job. We did sell the primary home we were living in and took the capital gains exclusion on it.
Our second home in Florida remains unfinished and has never been rented.
In order to exclude capital gains on this property, it sounds like I should exchange that Florida second home for like-kind property here in Reno, move in to it and live in it for at least two out of five years before selling it. Is that correct?
[ Edited by cleverjon on Date 12/28/2005 ]
cleverjon,
Sorry, but your primary and your second home are not eligible to participate in a 1031 exchange.
[ Edited by NewKidInTown3 on Date 12/28/2005 ]