Earlier this year I purchased a home on the advice of two real estate professional friend of mine. The idea was to buy the home, make a few repairs, and then sell the home soon thereafter. My friends brought me into the loop because they did not have sufficient equity capital to complete transaction. Basically, I put up the money and they have done all the work. They've now found a buyer for the property and we are in escrow to sell. I am the only person on the title, but we've agreed to split the upside equally 3-ways. My question is, how can we manage the tax implications of this arrangement? Can I pay each of my friends a finders fee equal to 33% of the profits of the deal? Is this OK?
Speaking with a CPA before you close the sale would be a really good idea.
You should be able to just pay them out of the sales proceeds on the HUD. The title company should be able to help you come up with exactly what to put on the transaction. Their thirds with each be taxable income for them, your net proceeds for you.
Wheatie nailed it...For proper tax cuts, CPA can guide you all the way.
For minimizing taxes every which way, your CPA may not help you (falsifying).
Creative ways are...(I'm sure, you have a good idea)
1. As you said, finders fee - keep it less than 20% total
2. Repairs, maintenance, travel
3. Listing, selling, transfer, closing fees, et al
These are just a few...
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