Purchasing a property from an owner for less than market value

2 Replies

I’m planning on purchasing a property from an owner/tenant for what they currently owe on the property.

At the moment they owe something like 10% of current market value on the property.

I am assuming the additional 90% value I’m falling into would be considered a gift in some way. Am I going to get hit on that additional equity tax-wise?

This is only further complicated by the fact that the deal is not at arms length.

It will not be considered a gift.  You will not suffer tax consequences at the time of purchase.  Your tax issue will come when you sell.  If you purchase a 100,000 house for 10k and then sell for 100,00k you have 90k in capital gains and will need to pay taxes on that.

The other downside is that you will only be able to depreciate based on what you purchased it for so you will be depreciating your 10k of basis.

The only way it could be considered a gift is if there is some potential for inferring a relationship that would indicate it's a gift, and then the consequences would primarily be on the person making the gift.

It does however look a bit odd, why wouldn't the seller simply seek a higher price if the property is that valuable?

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