Capital Gains On Rehab-
Any help is greatly appreciated.
I am in a rehab project w/ a partner. Took the property subject to the mortgage and recorded title in my name ONLY.
I am fronting the cash and carrying costs.
When the property is sold, I cut a check to my partner for his predetermined percentage of the profit.
The way I understand things:
1) I am responsible for capital gains since I am on the title.
2) I can write off his cut of the profit as a "finders fee".
Many thanks in advance.
The way I understand things, your profit on the property is taxed as ordinary income to your business and depending upon your business entity (or lack thereof) you may also be subject to self-employment taxes.
You mentioned a partner. Does this mean that you have a partnership agreement and will file a partnership tax return? How your "partner" gets reimbursed depends upon your partnership agreement.
DaveT-
Many thanks for your reply.
1) I am not incorporated yet. Do you have a suggestion for which type of incorporation to pursue? It is something I have read a lot about and am leaning towards LLC but have not made a decision yet.
2) When I say partner, I only meant someone working with me. We do not have a partnership agreement.
Can you recommend any web research I could do on the tax and biz bit?
Thanks again, I appreciate your input.
browncow
Your choice of a business entity should be made only after you have input from your attorney, your CPA, and your estate planning advisor.
General information on the different entity types and specific advantages of each might be found in the Legal Forum.