Overpay for Grandma's house to save on Taxes??

Question

Is it possible to overpay for Grandma's house and have her gift the difference back to me?

For example: Say the house is worth 100k, I pay 150k cash for the house with a plan to fix it up and flip it in a few years. Grandma gifts me back the 50k (diff. of what it was worth and what I paid).

Let's say, 3yrs later I spend 20k to fix up the house and sell it for 140k. Would I be able to claim a 10k loss on my taxes because the original purchase price was 150k?

Could this be considered illegal or fraud in any way??

Christopher Smith · Answer

Non arm's length pricing

Readily apparent circular cash flow,

Form over substance,

Preplanned,

and even advertised in advance,

what's not to like

Tom Degroodt · Answer

You maybe over thinking this.  What are you going to do with the home for the next 3 years?  Rent it, live in it, will grandma still be there?

In your example above you would buy for $100,000 then put 20K in.  So your basis would be 120K.  If you sold for 140k (let's assume no commission) you would have a capitol gains tax due on the 20K.  Here is a calculator to figure the tax. https://smartasset.com/investi...

If you are planning on living in the home before or while updating it then there would be no capitol gains (I think).

Here is what I found with a simple google search.

The Rules Of Primary Residence

If you own one home and live in it, it’s going to be classified as your primary residence. But if you live in more than one home, the IRS determines your primary residence by:

• Where you spend the most time
• Your legal address listed for tax returns, with the USPS, on your driver’s license, and on your voter registration card
• The home that is near where you work or bank, recreational clubs where you’re a member, or other family members’ homes

These are simple tests, but it can get more complicated for a homeowner who has more than one home.

Ray M. · Answer

@Christopher Smith I'm not looking to do anything illegal...which is why I'm asking the questions. Thanks for giving me some things to look up.