What are taxes on this HUD benefit?

[alyssumlover]

Hi,

I recently bought a house using HUD's Good Neighbor Next Door Program.

What taxes do I owe on the purchase price reduction?

Does the purchase price discount count as income for federal income tax? For social security and other payroll taxes?

If so, is the tax due prorated in thirds over the three years of the contract? Or is it all due in the first or third year?

Or is it considered capital gains, and I pay when I sell the house?

Thank you in advance for your consideration of this obscure question.

 

[davew128]

It's called a SALE. As in 5% off. Why you would possibly think this is income is beyond me.

 

[sandyclaus]

Hi,

I recently bought a house using HUD's Good Neighbor Next Door Program.

What taxes do I owe on the purchase price reduction?

Does the purchase price discount count as income for federal income tax? For social security and other payroll taxes?

If so, is the tax due prorated in thirds over the three years of the contract? Or is it all due in the first or third year?

Or is it considered capital gains, and I pay when I sell the house?

Thank you in advance for your consideration of this obscure question.

It's called a SALE. As in 5% off. Why you would possibly think this is income is beyond me.

Perhaps OP is intending to use the property as a rental in order to generate income. If that's the case, they should know that this use is PROHIBITED.

From the HUD's Good Neighbor Next Door Program's website Q&A (http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/reo/goodn/gnndfaq):

You must live in the home as your sole residence for a full 36 months. The purpose of the program is to strengthen communities by encouraging employed, professional law enforcement officers, teachers and firefighters/emergency medical technicians to live in the community. You will have 30, 90 or 180 days to move into the home you purchase, depending on HUD's determination of the condition of the home and the level of repairs that may be required, if any. The 30th, 90th or 180th day is the start date for the occupancy period. Your are released from all obligations under this program at the end of the 36th month following the start date. HUD views the occupancy obligation seriously and vigorously pursues violators to the fullest extent of the law.

In fact, if it's found that the participating homebuyer violates the occupancy requirements, they may be required to pay a pro-rata portion of the discount back to HUD.

 

[davew128]

Perhaps OP is intending to use the property as a rental in order to generate income. If that's the case, they should know that this use is PROHIBITED.

I can't speak to HUD requirements, but if it indeed was a tax question it's a rebate pure and simple.