topic Building a home and borrowing 75k from family to do it. Tax implications and anything else? in Deductions & credits

Building a home and borrowing 75k from family to do it. Tax implications and anything else?

sweetrvr — Thu, 06 Jun 2019 14:31:54 GMT

I'm putting in about 70k and borrowing the rest for a total of about 145K to build a carriage house. My home in zoned for 2 residences, so I'll be living in the main house. I'm in Colorado.

I have no idea the tax implications for borrowing this much money.

Should I have my family pay the contractor directly?

Should I form an LLC?

any input greatly appreciated.

Why would you want an LLC? If these loans are going to be...

Opus 17 — Thu, 06 Jun 2019 14:31:56 GMT

Why would you want an LLC?

If these loans are going to be treated as actual loans, you may pay interest to your relatives. That's doesn't affect your tax but they will pay income tax on the interest received. However, you can't deduct the interest as mortgage interest on schedule A unless the loans are "perfected" against the home -- listed as liens against the property with the county clerks office. (You can still deduct the part of interest that is a rental expense against the rental income if you pay interest, even if it isn't perfected.)

Loans are not taxable income to the borrower unless canceled. But in this case, the IRS would probably treat the money as a family gift, unless your relatives are really insistent on making this a business-like loan that is recorded against the home, with interest, etc.

Your cost basis is the amount you actually pay to build the house. It doesnt matter if that amount includes loans or gifts from your relatives, you are still spending "your money" (either a loan you will repay, or a gift) so it counts toward the cost basis.

So if I treat it as a "family gift" how does this work......

sweetrvr — Thu, 06 Jun 2019 14:31:58 GMT

So if I treat it as a "family gift" how does this work...is it taxed?

Gifts are never taxable to the recipient. Gifts are taxa...

Opus 17 — Thu, 06 Jun 2019 14:31:59 GMT

Gifts are never taxable to the recipient. Gifts are taxable to the giver only if the lifetime amount of gifts given is more than $5.4 million. If the gift is more than $14,000 per person per year, a gift tax return is required (from the giver) to record the gift against their lifetime total but no tax is owed. Turbotax does not prepare this form, you can get it from the IRS web site.