Tax question for off market sale (wholesale)

Tax, SDIRAs & Cost Segregation
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Tax question for off market sale (wholesale)

Joe Sadusky
Rental Property Investor · Levittown, PA · Member since 2016 · 109 posts · 97 votes

Hey Guys! 

I have a tax related question for an off-market deal that I am about to get under contract. 

Quick rundown of the situation:

Client is living in a property that was purchased by his sister in 2002.  She bought the house for $120,000 cash and there is no mortgage.  The house is in really rough shape and my client wants to sell the house to us for an agreed amount of $95,000. 

He is asking about taxes that would need to be paid due to the sale of this property (to be incurred by the owner- his sister). 

Since she will be selling me the house for less then what she bought it, is there no capital gains?

What other taxes would she need to pay for this sale (approx.)?  The property is in PA. 

Thanks in advance for any help! 

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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
7y
Originally posted by @Joe Sadusky:

Hey Guys! 

I have a tax related question for an off-market deal that I am about to get under contract. 

Quick rundown of the situation:

Client is living in a property that was purchased by his sister in 2002.  She bought the house for $120,000 cash and there is no mortgage.  The house is in really rough shape and my client wants to sell the house to us for an agreed amount of $95,000. 

He is asking about taxes that would need to be paid due to the sale of this property (to be incurred by the owner- his sister). 

Since she will be selling me the house for less then what she bought it, is there no capital gains?

What other taxes would she need to pay for this sale (approx.)?  The property is in PA. 

Thanks in advance for any help! 

 If this was normal transaction between direct  buyer and seller, there would be no tax as seller is in the loss position. 

1) If this house was used and reported as rental from the sister to brother, the sister could use the loss to offset her other income. 

2)) if this was not a rental, and sister had just let the bother live in the house, sister cannot use the loss. Loss in personal in nature and cannot offset other income.  

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  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Joe Sadusky

    A lot of unanswered questions here...

    Who gets the $95k?  Your client or his sister?

    Was there any formal agreement between your client and his sister pre-sale?  Were there any payments for use of the property?  How has sister treated this property on her tax returns up to this point?

    Assuming the sister is still alive?

    One thing is certain, is that if you're not a tax professional you shouldn't really be giving your clients tax advice like you shouldn't be giving them legal advice if you're not an attorney.  If you must, mention you're not a tax pro and they should confirm your "understanding" with one.  Just a CYA and for your own liability purposes.

    1Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
    7y
    Originally posted by @Joe Sadusky:

    Hey Guys! 

    I have a tax related question for an off-market deal that I am about to get under contract. 

    Quick rundown of the situation:

    Client is living in a property that was purchased by his sister in 2002.  She bought the house for $120,000 cash and there is no mortgage.  The house is in really rough shape and my client wants to sell the house to us for an agreed amount of $95,000. 

    He is asking about taxes that would need to be paid due to the sale of this property (to be incurred by the owner- his sister). 

    Since she will be selling me the house for less then what she bought it, is there no capital gains?

    What other taxes would she need to pay for this sale (approx.)?  The property is in PA. 

    Thanks in advance for any help! 

     If this was normal transaction between direct  buyer and seller, there would be no tax as seller is in the loss position. 

    1) If this house was used and reported as rental from the sister to brother, the sister could use the loss to offset her other income. 

    2)) if this was not a rental, and sister had just let the bother live in the house, sister cannot use the loss. Loss in personal in nature and cannot offset other income.  

    [email protected]941-914-7779
    INVESTOR FRIENDLY CPA®4.9242 Reviews
    WebsiteView Page
    TaxMD® | Tax Planning Software
    WebsiteView Page
    1Reply
  • Marian Smith
    Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
    7y
    @Joe Sadusky but might not there be a gain if sisterhasbeen depreciating the property?
    1Reply
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