Selling A House And Giving Proceeds To Previous Owner

Forum|Forum|1 year ago
January 27, 2025
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I'm a real estate investor and I'm about to a deal with someone who is in foreclosure. I've agreed to pay the reinstatement amount in exchange for them signing the deed over to me. At that time I will get the house cleaned up and list it on the market and when it sells I've agreed to get reimbursed my costs for reinstatement plus any other costs plus a fee for my efforts. The rest of the proceeds will go to the previous owner. I want to make sure I do this correctly from a tax standpoint since all I'm making is a flat fee. Since the previous owner is getting most of the proceeds does the closing attorney issue him a 1099S and then issue my company one for a much lower amount? Any advice would be appreciated.

RobertB4444

Since your name is on the deed the 1099S will be issued to you. You have contracted with the previous owner to give a portion of the proceeds so you will have to issue them a 1099 for the money that you are paying to them and they will receive it as regular income instead of long term capital gains. They also lose the homestead exclusion on the gain on the sale of a primary residence.

@lincolnhawk616

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lincolnhawk616Author

That’s what I was worried about out. What about if he transfers it into a trust with both of us as beneficial interests and our agreement spelled out in the trust agreement? Then i

am trustee and the trust sells the house. Would that solve the issue?

DianeW777

We would advise you to discuss this with an attorney so that you you can get the correct legal advice. We cannot provide this kind of assistance.

Currently, the information provided by @RobertB4444 is the tax scenario based on your information and if the sale occurs with the property in your name.

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