Using Someone Elses Credit, How Do I Stop Them From Getting Capital Gains Tax

My dad is using his credit, and bought a house for me to rehab, when we sell the house, how can he not pay the capital gains tax becasue im getting all the profit. We already closed on the house but someone said put it in LLC and pay dividends but is there another way, is it possible to just write me a check for the profit, and send me a tax form for the money at end of year, i need help understanding this process can any help with a detailed (how to) so i know next time
thanks to anyone who can help

So you are using your dad's credit and not sharing in any of the rewards with him? interesting.

Well if your dad sold you the property for what he paid for it, plus his expenses he will not have any capital gains. He can sell it to you and take back a loan that isn't due until you sell the property, it could potentially trigger a due on sale clause of his loan if there is one in place, but as long as the payments are being made it shouldn't be an issue.

There are many ways this can be done, you should probably speak to your tax person for the best way for your situation.

he is being generous he is only taking 10% I owe him big for the favor

He will have no capital gains if he has no profit. When the property is sold deduct the purchase price plus the expenses to rehab plus your dad's ten percent. If he gives you the remaining monies via a 1099 misc then he will still pay capital gains but only on the 10% he kept.

Dad bought the property, right? You do all the work, fix it and sell it. When the property is sold, Dad will have taxes to pay on the profit. When Dad does his taxes, give him the amount of the additional taxes that he has to pay.

Let me recap: He bought it, he sold it (technically). If there is a profit of 20k and he has 6k in tax liability, pay him 6k in April when Dad does his taxes plus whatever else you are giving him for being a great Dad.

Next time just borrow the amount of the purchase, rehab and holding costs from Dad, and you do everything in your name.

If Dad is providing credit you don't have, chances are his tax bracket is going to be a lot higher than yours. Having him pay the taxes on the profit may not be a good idea. The cleanest method would be to have him pay you "your" profit via a 1099 for services provided- in other words, just as you suggested he writes you a check then sends you the tax form. Then you pay income/self employment taxes on this, assuming it is a flip.

For the future- form an LLC; just file the form, no operating agreement necesary between just you and your obviously helpful dad. Run all your purchases, sales, etc. through the LLC, with Dad personally backing the loans. Distribute the profit as per your agreement, and it will be treated as though the LLC doesn't exist as it is a "pass through" entity. Ideally, rent the property for the one year holding period so you pay Capital Gains instead of income and SE tax, save yourself a bundle. (You can still do this with your current property, and with the lender's approval ["my financial advisor insists..."] still put it in an LLC also.)

Chris

Just have your Dad quit claim the property to you. When you turn around and sell it, only your name and SSN appear on the HUD-1 and only you get the 1099 showing the sale proceeds.

Your Dad has no capital gain impact., though it would be a nice gesture to repay him any money he put into the deal to get the project off the ground.