A friend inherited a house. She would like to sell me the house for $300,000.?

Question

She wants me to pay her in cash every month so she does not have to report the income. Once I have bought the house how do I get the deed in my name and what is the tax liability on my part and her part? I am aware of the legality of her not reporting the income, but am I doing anything that is not in line with the law?

Answer 1

Here's the problem... what she is doing is illegal if she doesn't report the income. It *HAS* to be reported no matter what. However, the house she inherited, i'm sure was with the previous owner at least 2 years, so most likely the gain on the property is non taxable. She'll need to check with a tax guy tho' to ensure that.

In addition, if you pay her monthly, are you paying interest? If not, then no worries. But, if you are, then you don't get to write off ANYTHING. Also, when the house is sold, the title has to be transferred to you. When that happens, her sale is reported to the gov't and they WILL find her if she doesn't report.

In addition... you do NOT want to buy a house outside a standard real estate contract. Why? Because how do you know if the property doesn't have other liens attached to it?? There may be other issues with the house that need fixing too... there are lots of facets regarding buying a home. Do *NOT* go into this transaction the way your friend has it set up. Sounds like a SCAM to me.

Answer 2

You would be hanging out a long way going along with this - how would you prove the money you gave her was to buy the house?  And in fact, if it's truly cash, how would you even prove that you gave it to her?

Stay away from this one.

Answer 3

Judy is right.  BAD idea!  Your friend is not thinking clearly.  The cost basis of the house was adjusted when the previous owner died, so there would be little tax impact to her if she just sold it the right way.

Answer 4

You are OK.  Just get a receipt every month.  THen it is completely businesslike.   You can only deduct the mortgage interest on your Itemized Deductions if it is reported by the seller to the IRS.  Maybe if you get the house for a cheap enuf price you don't care about a deduction.