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My husband and I bought a foreclosed home for my son. We own a construction company, so we did all the repairs and renovations ourselves. We have kept a running total of expenses. Under the rules of the purchase, my son's name had to be listed as the owner. When he gets a bank loan to pay us back, will we owe income tax on the loan repayment?

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    This loan sounds like a mortgage. What exactly is he repaying you for (the property as well as renovations)? – RonJohn Sep 30 at 22:13
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    Tax questions require us knowing the country. – mhoran_psprep Sep 30 at 22:24
  • He is only paying us back the expense of the purchase and renovations. Our out of pocket expenses. Country is USA – Linda Kendall Oct 1 at 23:10
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I would ask a tax adivsor so you don't make any mistakes and everything ends up tax free.

Since your son is paying you back, what happened is that you gave him a loan to buy a house, then your company did work for him, giving him a long time to pay back.

You can charge him at cost for the work your company did plus materials, so you don't make a profit, and pay no income tax on that. The money you paid out to buy the house is just repaid, so there is no income tax on that. What your tax advisor must make certain is that the source of the money for the loan is fine, and that your company booked expenses correctly. Say you paid $100,000 for work and materials on your sons home, and booked this as reducing your company's profits by $100,000 and save taxes, then you won't have a choice but pay taxes on the money that he pays to you know.

Giving your son the huge loan, possibly interest free, may be counted as a gift. In the USA I think gifts can be huge before someone has to pay tax on a gift, in other countries less extreme but still quite a lot can be tax free.

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    The best/easiest way to do it would be to draft a mortgage at a bit below the going mortgage rate (to not make the IRS suspicious), and then each year gift the son the interest. Or not, and just keep it. Regardless, there will be some interest income. – RonJohn Sep 30 at 23:10
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You will need to talk to an accountant about gift taxes - both for the home purchase and potentially for the (below market?) interest rate on the loan.

EDIT:

https://www.irs.gov/instructions/i709

If you gave gifts to someone in 2018 totaling more than $15,000 (other than to your spouse), you probably must file Form 709.

  • We aren't charging any interest – Linda Kendall Oct 1 at 23:11
  • The lack of interest might be considered a gift. – Charles Fox Oct 1 at 23:23
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    @LindaKendall See this link for more information. A low-interest or no-interest loan is a gift of the interest that you could have charged. The interest is also income -- you can't gift something you don't have. investinganswers.com/dictionary/i/imputed-interest – David Schwartz Oct 2 at 13:50
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You bought a house fixed it up and sold it. Just because the buyer is your son and he is getting a mortgage to pay for the house has no bearing on the matter. In the US at least, you would need to pay taxes on the profit. Since you are probably selling it at cost means probably no taxes due. Selling below cost is most likely considered a gift and invokes gift taxes.

  • There will be taxes on the interest (or, if a 0% loan) what the IRS thinks they should have charged him. And no gift tax because #1 the $30K gift exclusion, and #2 any extra is deducted from their $23MM estate tax exclusion. – RonJohn Oct 1 at 0:23

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