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It's not income, it's repayment of a loan.

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M

Mark2365

Active Member
What is the name of your state? Arizona.
Hello, people,
In Arizona, in October 2017, my husband and I loaned to his brother $80K to help in purchasing a house.
The $80K was a wire from our bank to the escrow company.
Both the brother and my husband had their names on the house Title.
In March of 2019, brother sold the house, and the Escrow company sent to my husband $80K to repay the original loan, no interest being charged.
Title company recently sent to us a 1099, indicating the $80k was proceeds from the house sale.
How do we tell the IRS that it was a loan payback, not to be considered income from the house sale?
Thanks.
Mark2365
 


I

InsuranceGuy

Junior Member
This year use an accountant to file your taxes and describe the situation in detail to your tax preparer. Some explanatory note to accompany your return may be appropriate.
 
FlyingRon

FlyingRon

Senior Member
It's not the escrow company's fault but the brother, most likely. If he told the escrow company to give $80K from the proceeds to your husband, they did the right thing.

However a 1099 just indicates money paid, it doesn't necessarily indicate a taxable amount. He should be prepared in OTHER documents to show that the money was indeed a loan repayment whether a 1099 was issued or not.
 
D

davew9128

Junior Member
InsuranceGuy said:
This year use an accountant to file your taxes and describe the situation in detail to your tax preparer. Some explanatory note to accompany your return may be appropriate.
Click to expand...
There is no acceptable prescribed method for this though. The problem is that the IRS's computers will be looking for an income item of this amount because the IRS's presumption is that all filed informational documents such as 1099s are correct. In fact thats not what the law says, in fact the burden of proof on a contested 1099 falls on the IRS. So how do you handle this on a tax return? An explanatory note in and of itself won't stave of an IRS inquiry. It won't even get looked at. Reporting the income and a corresponding negative seems to work from a practical standpoint yet there is nothing in the law to support it, nor is it even technically correct.
 
adjusterjack

adjusterjack

Senior Member
Mark2365 said:
Both the brother and my husband had their names on the house Title.
Click to expand...
That raises another issue. Your husband was an owner of the property and, as such, the $80,000 he put up may be construed as an investment in the property and not a loan. Therefore the 1099 is correct and the $80,000 WAS the proceeds of the sale and your husband will have to figure out how much of that was his gain on the investment.

There might or might not be any gain but your husband needs to hire a tax pro to figure out how to present it to the IRS on your tax return and what documentation your husband should retain in case he ever does have to prove it.
 
M

Mark2365

Active Member
Wow. Thanks very much for the multiple replies, people.

Dave9128, What error did the Title co make?
And I agree: the IRS is not going to Read any explanatory note. Govt employees.

InsGuy, Yeah, we'll probably use a tax Preparer this year.

FlyRon, We All told Escrow co to give us $80k. Yup, they did the right thing.
And yup, we've asked Brother for a letter stating the facts, but we're sorta' on less-than-perfect speaking terms now. He may or may not oblige.

AdjusterJack, we loaned $80k, and received $80k from the sale. No gain. Hell, there wasn't even any Interest on the loan.

Time to find a good tax Preparer. Thanks, people.
 
B

bcr229

Active Member
Look through your records to see if you have the bank statement showing the wire transfer to the escrow company in 2017. The tax preparer may need that.
 
T

Taxing Matters

Overtaxed Member
Mark2365 said:
What is the name of your state? Arizona.
Hello, people,
In Arizona, in October 2017, my husband and I loaned to his brother $80K to help in purchasing a house.
Click to expand...
Did you get a promissory note or other written contract with your brother-in-law to support that this was a loan?
 
LdiJ

LdiJ

Senior Member
Mark2365 said:
What is the name of your state? Arizona.
Hello, people,
In Arizona, in October 2017, my husband and I loaned to his brother $80K to help in purchasing a house.
The $80K was a wire from our bank to the escrow company.
Both the brother and my husband had their names on the house Title.
In March of 2019, brother sold the house, and the Escrow company sent to my husband $80K to repay the original loan, no interest being charged.
Title company recently sent to us a 1099, indicating the $80k was proceeds from the house sale.
How do we tell the IRS that it was a loan payback, not to be considered income from the house sale?
Thanks.
Mark2365
Click to expand...
Your husband was an owner of the home and participated in the selling of the home because his name was on the title/deed. However, his investment was 80k and his sales proceeds were 80k so he has no capital gain or loss. Therefore he reports the sale on Schedule D with proceeds of 80k and a basis of 80k and its a wash.
 
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