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    Real Estate and taxes

    I have a client who is purchasing a property with her grandfather. He is paying for most of the property, and to differentiate it from being an investment property (state laws), she will live in it for a year and then will have the option of selling it. She is planning to then sell it to her parents for market value, which may be about the same.

    Question: Can anyone foresee any negative tax consequences for any involved?

    #2
    There could be problems

    or there might not be. We really need more information, for example:

    Why is grandfather paying for "most" of the cost of the residence? Is he loaning her the money or just making a gift? Either way, there are consequences, and not necessarily bad.

    Why is she only living in it a year?

    Her basis will be roughly the total price of the property, whether this is a loan or gift, either way. If she doesn't live in it long enough to qualify for exclusion on a personal residence, she will have to deal with profit or loss upon the sale. If a loss, she will not be able to deduct it if the sale is to a relative.

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      #3
      Related Party Transaction

      You might want to review the rules for a related-party transaction (grandfather/grandchild/parents).

      Good luck!

      Mo

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        #4
        I agree, if there is a loss then the loss can not be deducted due to related party transaction. This is often overlooked and when you break the news to your client they completely flip out!
        Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR

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