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Last Auguest, my friend's land went into the auction (by the city)due to she couldn't make the mortgage payments. I went ahead to loan her the money to paid off the land, and using the land as the collateral. A few days ago she did a warranty deed to turn over the land to me. Now her friend wanted to buy the land from me for higher price then how much I orininally loaned her (I will pay back to my friend the different if I get more then she originally owe me). How will I be paying the tax for the capital gain? Will I have to pay the portion of the property tax after the land been paid off until the warranty deed taking place?

So, lets see if I have this right.

You lent person A money to pay off their mortgage to some other lender, so it wouldn't go to auction on the courthouse steps?

Then person A gave you the land instead of paying off the loan you made to her?

Now person B will buy the land from you for more than you made the loan for?

And you intend to give a gift to person A of the difference between the loan and the amount person B is paying?


Assuming the above, you have interest income on the interest for the loan you made to person A. (If you didn't charge any interest, IIRC, you still get to pay income taxes as if you did. IRS considers it as if you had charged interest, and given a gift to the person to pay the interest)

If you sell the land for more than what you paid, I'm *GUESSING* you have a short-term capital gain. (maybe long term if it's been long enough time)

And the gift of the difference to person A is a gift (so subject to the gifting rules - which only really matter if in a year you give her more than $12k)
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