Real Estate and taxes

[Openfire]

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?

[Golden Rocket]

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.

[Mo Sheets]

Related Party Transaction

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

Good luck!

Mo

[ATSMAN]

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!