Capital Gains and Losses
Capital Gains Tax Questions? Ask a Tax Advisor for Answers ASAP
Your cost basis is what you PAID for that real property.
Your cost basis is not changed because you paid the car loan for the buyer.
Instead - the sale price will include the amount you paid directly to the buyer plus all payments you make for that buyer - including the amount you paid the car loan.Just an illustration example.Assuming time ago you purchase that real property for $50,000 - that would be your cost basis.Today - you are selling the property for $80,000 - that is your selling price.
From that amount - you pay off the car loan for the buyer $15,000 and pay directly to the buyer $65,000.
Let me know if you need any help with reporting.
Yes - that is correct for that example.
But whether you will have any tax liability on that gain depends on other circumstances - your total income, filing status, other deductions and/or credits.
The buyer will establish his/her basis in that property $80,000 which woudl be the purchase price.
Whatever you pay on behalf of the buyer as part of that sale transaction will be included into the sale price.
If you held the property at least one year - that will be long term capital gain - taxes at reduced rate - but in your income level - there will be additional AMT taxes...In your situation you are selling the real property.I might confuse a little...So the buyer pays you - and you will be a recipient of the money.
Why do you include that car loan here?Just have a separate sale price - and let the buyer to handle his/her car loan?That might be a simple solution... is that possible?
So she pays YOU for the real property and at the same time wants you to RETURN some of that payment in the form of loan payment for her behalf...You will need to mark that amount as a reduction of your sale price - and in this way - it will be excluded from your gain.
Is that transaction regarding loan repayment is reflected somehow in your sale contract?
I would agree with you that lender will not accept such contract when the mortgage is based on the value of the property...
So you will have a sale price states in the contract - and in HUD1 I assume - that will likely be required by the lender.
Then the title company will issue 1099 form reporting THAT sale price to you and to the IRS.So you would need to adjust the sale price - based on that amount you actually pay back.You may have an additional addendum to you sale contract regarding reduction of the sale price and payment documents where that reduced amount will go.
You will be able to adjust the sale price on your tax return when the sale will be reported.
But that would be not correct to roll that amount into your basis.
The first issue - that any payment you are doing on behalf of the person is considered as a payment to that person.
Thus if you are making a payment to the creditor on behalf of the buyer - that is a constructive payment to the buyer...
What you want to achieve - to have that treated as a reduction of the purchase price - and de-facto that is a REDUCTION.
Regardless of the contact and tax reporting on 1099...
The only issue might - you need to document that payment as a part of the whole selling transaction - and not as a separated gift.
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