Hello, I’m trying to get an understanding, so I’ll keep it simple. I have private lenders that will loan my corporation up to 75% loan to value on property. Let’s say we borrow $100,000 at 12% interest and secure the lender with a first position mortgage and a promissory note against the property. At closing the property is purchased for $30,000 and we walk away with a check for $70,000 for renovations. The property needs $30,000 in renovations, which leaves $40,000 in additional loan money sitting in the bank. When the property sells for $150,000 and the original loan of the $100,000 is paid back at closing, would we be taxed on the $50,000 profit, or would it be looked at as a $90,000 profit because of the extra $40,000 in loan money that was still sitting in the account? Also can the receipts from the vendors such as Home Depot or Lowes and the checks written to contractors also be used as a write off against the profit or would that be considered double dipping since the renovations were done with the original loan? Help on this would be very much appreciated.
you do have a profit of $90,000
Sale price $15000
Less cost $30000
Less rehab cost $30000
Less interest on loan xxx
Less insurance and overhead xxx
The loan amount is irrelevent.
a more likely scenario is:
Buy for $30000
Rehab twice what you expect $60000
ARV sale price. $110000
Sale costs $8000
Net profit $12000. Good deal.
Thanks for your input Arlan. I appreciate it.
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