@holeinone1659 wrote:
I bought a second house for my son for $25,000 I sold it to him on a land contract. He paid me off and we sold the house for a $100,000 profit. We bought another house for $172,000 in my name and I sold it to him on another land contract. We applied the $100,000 as a down payment. Is this a taxable event?
Your question is very confused and you may need to see an accountant.
I bought a second house for my son for $25,000 I sold it to him on a land contract. He paid me off and we sold the house for a $100,000 profit.
We? Who owned the house, you or your son or both? It sounds like you sold a home to him for $25,000 and he sold it to someone else for $100,000. In which case, you may have a taxable event, if your son paid you more than you paid the first seller. You may also owe income tax on any interest you received from your son, and you may owe income tax on imputed interest even if you did not charge your son interest. Your son definitely has a taxable event, and owes capital gains tax on $75,000 of capital gains, unless he lived in the home as his main home for at least 2 years. If he made improvements before selling the home, he can include the cost of the improvements in his cost basis which will reduce his gain.
We bought another house for $172,000 in my name and I sold it to him on another land contract. We applied the $100,000 as a down payment.
This is unclear. If the house was titled in your name but paid for with your son's money, then you may own the house and you may have even technically stolen the $100,000 from your son. Then your son might be buying it from you. There is no "WE" unless you established that in writing up front on the deed. You would owe capital gains if you sold it to your son for more than you paid for it. You will also owe income tax on any interest, if he paid you interest. The IRS may require you to pay tax on imputed interest. (The IRS assumes that business transactions will be carried out in a businesslike manner. You can gift a house to your child, but if you sell the house to your child on a time contract, the IRS may expect you to charge the same interest you would have charged if you sold the house to a stranger. This is called imputed interest, and you may owe income tax on this imputed interest that you would have charged a stranger even if you didn't charge interest to your son.)
Your son will owe capital gains tax if and when he sells his current house, unless he qualifies for the exclusion by living in it as his main home for at least 2 years.
Your son can't postpone the capital gains tax on the $75,000 gain from home #1 by buying home #2, because that law was eliminated a long time ago. (Also, even under the old law, he could not postpone the gains tax if he gifted the $100,000 to you for you to buy a house in your name, which is what it sounds like he did.)
You are acting as though this is a partnership with shared money, and it is NOT. You need to see a tax accountant to get your tax returns straightened out and to get some advice on how to proceed further before you make a bigger mistake.
