Tax Consequences of Paying out investors

[Donovan Lietch]

Hello, I'm looking to recruit investors in a house flip, similar to a crowdfunding scenario.  So my question is whether there is any tax liability to those investors.

Assume one particular investor gives me (or my LLC) 10K. Then I pay back the 10K, plus a percentage of the profit from the eventual sale. Of course, since the payback is variable, perhaps the investor holds a tax consequence, even if I pay the capital gain / ordinary income tax.

Has anyone experienced that?

Thank you!

[Michael Plaks]

@Donovan Lietch

Whatever the investor receives over and above his $10k investment is taxable income to him (and also a deductible expense to you.)

Seeing how little you know at this point about recruiting investors, I highly recommend you don't try it on your own. Get some help, please: from an attorney, an accountant, or an experienced investor.