tax info for private money lending

2 Replies

Hi, Im a new investor in Charleston, SC and looking for some help from someone who has already figured out this problem. I have read books, listened to pod casts, found deals, and secured a private money lender who is interested in investing in fix and flips. Specifically, I am interested in how to receive the money from the lender account to my own to make the purchase without Uncle Sam seeing it as a taxable income. Also, after the sale how is that money deposited back to the original account without paying taxes on the original loan amount. Whats the easiest way to pay taxes on the net profits? Should I withhold the taxes before distributing or distribute and each person claims the income on their own taxes? Would it be easier to open a joint account to make payments and deposits? My private money lender is a personal friend of mine if that makes a difference. Thanks for the help!

@William White Receiving money into your account and reporting it on your tax return as taxable income are two different things. Receipts and repayments of loans are not taxable events. Receiving the money into your own account (or a business account, if you've formed an entity) is fine. I would stay away from a joint account. Even though it's your friend, it would be wise to have a legal contract between you and the lender to prove (if ever necessary) that it is, in fact, a loan.

Now, to address taxes... It sounds like you have other investors who will receive a share of the profits. Is that true? If so, are you guys operating under an incorporated entity? In either case, you should not withhold any taxes on your own; net profits should be distributed to each partner/shareholder and each individual is responsible for his or her own tax bill.

Nicholas Aiola, CPA in New York (#119518)

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