Thanks for your reply Mikey. I have a call into my cpa but he is totally swamped right now.
Is there agreement with Mikey on this?
If so, there has to be a better way to structure a 0% finance deal so as to limit the tax implications for lender/ homeowner.
What would that structure look and feel like?
What is the best way to structure this and more importantly what can I do to help mitigate his tax exposure on this deal?
I really need to learn as much as I can about this ASAP!
I want to present possible solutions to him. I need to take good care of him as he is going to be a good source of private money for me.
I would like understand a structure or scenario well enough to present to my RE attorney.
I bought a house last year in Georgia from a homeowner with 0% financing. I just got a call from him stating that his Cpa (he owns a business) is telling him that it’s not legal for him charge an unreasonable interest rate. The Cpa is telling him that the IRS says that 0% is just a way to avoid paying taxes on the interest the loan would recieve. His Cpa told him that he “HAS” to charge the going rate of interest at the time of the sale. Since he did not, he needs lower the selling price of the home and apply the prevailing rate of interest at the time of sale, and then pay the taxes related to that interest himself.
I want to tell him there are 3 people that pay their own salaries (real estate agents, attorneys and cpa’s) and one of his is not. Am I off base here? What useful information can I give him to ease his tax burden?
I am really thinking he needs to talk to a different cpa or even a tax attorney.
What’s missing is how/where the seller is making his money. If you purchased the property at a premium of its value so that you could then receive 0% financing then that is a possible scenario which may pass IRS scrutiny. Really though - you need to provide further information for more pointed responses.