I have a (complicated) question regarding double closing, foreign investors buying and selling properties in the US, and beyond.
Due to our current situation (long story), we cannot afford to have extra income (beside salary) being shown on our tax report for the next couple of years. We have completed our first rehab on a SFH (YAY!) and now trying to sell it, get the cash to buy more rentals (rental income is OK). And yes, we don't want to keep this house for rental, hence the complicated story.
According to my realtor (who used to be a CPA), the only way to avoid any extra income being shown on our tax report is to have the house sold for no profit (after deducting purchase + holding + renovation + selling costs). She advised us to sell the house to our mother who is a non-US citizen for no profit, then my mom as a foreigner can immediately sell the house at the market value for us. Essentially, my mother is only acting as an intermediary for us in this transaction.
- Cost wise: The realtor (very experienced one) can arrange title transfer from us to my mother for around $500. So we will not have to pay double closing cost.
- Time wise: The realtor said her team can make title transfer between us and my mother in within a week.
1) My first question: If it is just title transfer, do we have to have some kind of funding money transferring from our account to her (not yet set-up) US account? If there is no fund to be transferred, will it has to be done as "gifting" or not, which might result in any tax liability?
2) After researching BP forums, I understand that my mom has to pay FIRPTA tax rate on her gain. I assume it will be higher than if we sell the house under our name which we have to accept due to our situation. However, I am not sure how much the tax rate is if she does not hold it under an LLC, since this is only a one-time thing for her. The house is in the 125-130K value range.
Any other issue/matter that I need to look into while doing this kind of double transaction trying to sell the house?
Any comment is greatly appreciated!
How much equity do you have? If you paid cash to buy/rehab, don't sell it...refinance it. That way, you get the cash out in the form of a loan (not taxable income...even though it is income to you). The depreciation should offset most of the income from the cash flow.
Add your mother onto title to take up the remaining CF until you can start to show income.
Thanks so much for your early reply!
Yes everything paid in cash, so refi is good idea. However, more clarification please:
- By CF you mean I keep it for rental, is that right? However, we do not want to keep this house for rent due to location (we are not yet ready to deal with lower-end renters).
- My mom is non-US resident so her share of CF will result in different kind of tax liability on her side, seems like too much trouble for us.
Any more input? Thank you!
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