Mixed up Real Estate Sale

[DaveO]

Son is a Realtor and decides the path to prosperity is rehabbing and flipping houses. He gets Dad to cosign the loan for the house and uses Dad’s home equity line of credit for fix up expenses. It takes over a year to complete repairs and sell the house. In between the Son’s employer is bought out and new owners prohibit their agents from selling houses on their own, so Son quit claims the deed to Dad. Six months later the house is sold.

Now Dad has a 1099-S for $200K and Mortgage interest on the sold property and Home Equity interest on his own house tied to the flipped house.

Son has performed all work on the house and has paid all expenses including the interest. Dad would like the interest deduction and Son would like to report the income from the sale of the house on his return. In reality, this is a joint venture that would have fit in an LLC very well.

Anyone see a way out of this mess?

[S T]

Messes

Got to Luv our clients, when they get themselves into these convulted messes and we get to try to straighten them out at tax time!

I don't have an answer!

Sandy

[Burke]

Son is a Realtor and decides the path to prosperity is rehabbing and flipping houses. He gets Dad to cosign the loan for the house and uses Dad’s home equity line of credit for fix up expenses. It takes over a year to complete repairs and sell the house. In between the Son’s employer is bought out and new owners prohibit their agents from selling houses on their own, so Son quit claims the deed to Dad. Six months later the house is sold.

Now Dad has a 1099-S for $200K and Mortgage interest on the sold property and Home Equity interest on his own house tied to the flipped house.

Son has performed all work on the house and has paid all expenses including the interest. Dad would like the interest deduction and Son would like to report the income from the sale of the house on his return. In reality, this is a joint venture that would have fit in an LLC very well.

Anyone see a way out of this mess?

Can't figure out why son wants to report on his return. Or how a company can decree that an employee (independent contractor probably) cannot sell a house he OWNS. Either way it is a Sche C. Dad is legal owner of house, he is legally on the mortgage, the equity line is his anyway. Why can't he report and he and the son can work out what he owes son for expenses from the proceeds?

[DaveO]

Thanks for the response

My contrary nature just kicked in. I didn't make the problem. I wasn't consulted on the issue. Therefore it's not my problem. Dad can report the sale and son can reimburse him the tax if he wants. I have enough audits and CP2000 notices I didn't cause without creating a new one for myself.

[Burke]

My contrary nature just kicked in. I didn't make the problem. I wasn't consulted on the issue. Therefore it's not my problem. Dad can report the sale and son can reimburse him the tax if he wants. I have enough audits and CP2000 notices I didn't cause without creating a new one for myself.

Woke up in middle of night last night and figured reason son wants to file sale on his return is he lost his butt on the deal, right? So he wants to deduct it? But I think you are right on. Son may have paid all expenses, I but guarantee they came out of the mortgage and the equity line and he has none of his own money in the deal. Make life easy for you, and report on Dad's, let them work it out.

[Roland Slugg]

Or how a company can decree that an employee (independent contractor probably) cannot sell a house he OWNS.

This is extremely common. In California and Nevada, many (if not all) large real estate brokerages have this rule. They will, however, usually allow an agent selling his own property to assign the listing to another broker in the same office, then pass along to the owner/seller most of the commission earned upon sale.