When I calculate my cost basis on a sold property for tax purposes, do I get to subtract out what I pay my investors? For example, I am making 50k on a sale (after commissions, renovation costs, etc.), but I owe my investors $13k. Can I use 37k as my cost basis and then caculate how much I need to set aside for taxes, or do I have to use 50K?
You don’t really give us enough information about the structure of your deal and the extent of your investor’s participation to give much of a meaningful response.
Your cost basis is what you paid for the property plus the cost of capital improvements minus depreciation. Your profit is your selling price minus selling costs minus cost basis.[*]The presence or absence of financing has nothing to do with your profit calculation.
I guess my confusion is that I contracted with my investors to pay them a certain amount upon sale of the property, thus I’m not really counting that 13k that I owe my investors in my profit. I was just wondering if the IRS considered that also, especially since it is in a written contract?
How much did you personally contribute to the deal? How much will you personally get out of the deal?
The difference is your taxable profit.
Your “investors” can each answer these questions for themselves to determine their profits.