Normal banking practices allow LTV of 90/10 max for most home owners. This limits the amount of home and subsequent tax free gain that the average person can manage. What happens, however, if the average homebuyer gets partners to share in the purchase or construction of a much larger home. The idea here would be:
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The buyer gets to live in a much larger, even custom-built home.
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The buyer can leverage a much larger tax-free gain over two years with
private money financing. A good portion of the gain, of course, would be
committed to the private money lender.
My question is, under what circumstances is this legal ?
Example 1:
The couple purchases a home as their primary residence in partnership with an entity on title (say 60 / 40), and later sells for a $ 500,000 gain. Can the couple legally take 60% of the exclusion ? If held for over two years, would they pay regular capital gains tax on the remaining 40 %?
Example 2:
The couple barrows money from a private source to build a custom home as their primary residence and sells 2 years later for a $ 500,000 gain. The private souce lender takes a note but not trust deed. Could the couple take the full $ 500 K tax free in this case ?