Taxed on paying previous owner?

I’m involved in a short sale right now. We agreed to give the current owners 25K to leave the property. My question is I don’t want to be taxed on that 25K so how would I writeoff paying them to leave? 1099?



Why would you be taxed on the $25k, it is not income to you?

Is your cash payment agreement with the owner included in the short sale package you sent to the lender? Does this amount appear on the net sheet or pro forma HUD-1?

sorry for the late response. It’s not on the Hud-1 due to the bank not allowing us to give the previous owner any money. My tax question is more after I sell the house. I do not want to pay capital gains tax on that 25K I gave them.

Sorry, but you will pay taxes on the $25K. Your 25K is a gift and not included in the cost basis for the property.

Make it part of the short sale, document it on the HUD-1 and then you will attain the goal you are looking for.

I sense that this deal smacks of loan fraud. You have a private side agreement with the homeowner that you are concealing from the lender during your short sale negotiations. The lender that approves the short sale would ordinarily be entitled to that $25K to the extent that it is needed to satisfy the homeowner’s loan. You are lying to the lender when you say that the homeowner will get nothing and that your written purchase offer is the sole agreement for the deal.

The $25k is a rebate of sales price or commission or something, but irrespective of what you call it, it is deductible for the buyer. If you’re out cash, it’s deductible. this is not a “gift.” it’s a rebate of purchase price. deduct it and keep a copy of the check.

now, the issue of loan fraud is another matter…