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01-24-2018 12:55 PM
I have found a great fixer upper for my son and his family. Lets say its is 100K for sake of argument. Because they have no credit history. I purchase the home with a down payment of 20%. In the mean time he invests his time and cash into fixing it up (new roof, siding, flooring, etc)
After a certain amount of time (not sure the minimum) their credit allows them to purchase the home. I don't want any profit I just want to be able to sell to them at what is left on loan (not down payment, not improvements) just the balance of the loan.
Is this a bigger deal than it sounds? thanks in advance
Solved! Go to Solution.
01-24-2018 01:59 PM
Welcome to the H&R Block community.
This is actually a very simple situation.
If you don't realize a gain on the sale of the home then you won't have any tax liability from it.
You'll still report the sale on Form 8949/Schedule D, but you won't have to worry about owing anything if you sell the house to your son for the amount of the remaining mortgage due because there will be no gain. If there is a gain your tax will be at your capital gains rate. Your capital gains rate may be 0% if your total income is low enough, or it may be 15% or 20%.
If you have any other questions I'll be glad to help.
Senior Tax Advisor (Tampa, FL)
01-24-2018 03:16 PM
That is fantastic. Thank you so much for the quick response. Is there any issues if I were to use a portion of my 401k for the down payment? I mean if I roll it straight to the down payment, do I have to pay tax or pay it back? What about when I sell?
01-30-2018 04:46 PM
To answer your question about withdrawing funds from the 401k plan in making a down payment on this home purchase, if the withdrawal from the 401k plan were to be a regular withdrawal, then you should receive a 1099-R to report it as a taxable income on the tax return. If this withdrawal from the 401k plan is used as a loan, that is you borrowed funds from the 401k plan, then it would not be reported as taxable income on your return. However, according to IRS Publication 575, you would have to pay back the borrowed funds from the 401k plan within 5 years. In the event that you are unable to pay back the full amount of the borrowed funds from the 401k plan, any remaining amount unpaid would be treated as taxable income. Regarding when the home is sold, the use of 401k plan funds for the down payment on this home purchase will not be affected by the sale. You just report how much the house was sold for and how much it was purchased on Form 8949/Schedule D when the home is sold later on.
If you have any additional questions, I'll be glad to help.
Tax Research Specialist