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Family member purchasing former marital home back from former

spouse and mother. Property is...
Family member purchasing former marital home back from former spouse and mother. Property is worth about 40K more than the purchase price, because mother in law put about 20k into the house. mom in law wants 20k back from him in a side deal. Any tax implications they should be aware about?
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Answered in 5 minutes by:
8/20/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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MyVirtualCPA :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

How are you today?

MyVirtualCPA :

Was this the mother in law's primary residence?

Customer:

No. This was her son in laws primary residence. He's buying it back with his wife after a divorce. They are still divorced. It was the marital residence.

MyVirtualCPA :

Okay...the mother in law would have capital gains in the amount by which the funds she received was greater than her basis in the property. Her basis is what she initially paid for the house plus the funds she put into the house

Customer:

So her side deal to get paid back for the funds she put in the house would be taxable. Is my friend going to be in trouble for going along with this scheme or it's really just her problem. Also if my friend sees a gain in the value of the home because he bought from her and it has a FMV higher than he's buying it for, is he subject to capital gains?

MyVirtualCPA :

Her side deal would be taxable, if the amount was greater than the money she had invested in the house. It would be her problem - he can't get into trouble for the deal. Also, he does not recognize a capital gain until he later sells the house for more than he paid for it

Customer:

thanks so much for your help. this is kind of what I thought, but it's nice to have confirmation by an expert. You've been very helpful.

Customer:

I won't keep you any longer. Have a great night.

MyVirtualCPA :

Thanks, XXXXX XXXXX glad I could be helpful. If you would, please rate my response as "excellent"

MyVirtualCPA :

so that I may receive credit for assisting you today

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Thanks, Laura for your positive rating. Please come back and visit MyVirtualCPA for any of your tax, finance, or social security needs. It was a pleasure working with you today.
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Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
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Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

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