"Google Groups" <goorgle[at]hotmail.com> wrote

- quote -

Look at a partnership, that pays the dad "Guaranteed
Payments" that are income to the dad, and an expense of the
partnership/ This shifts income more to the dad, who is in
a lower tax bracket.

- quote -

No, they will be regular income, as that is the business
activity.

The homes are not capital in nature.

--
Paul A. Thomas, CPA
Athens, Georgia

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A father and son are planning to buy a "fixer upper" home
which they're going to rehab and sell (flip) at a higher
price, and split the profits.

The son is in a high tax bracket and the father is
unemployed (0% bracket). The son is going to provide all the
financing and pay for the father's living expenses during
the project.

What is the best way to structure the deal to minimize taxes?

Some options we've been considering:
-1- Sole Proprietorship owned by the son. SP pays salary to
father for living expenses. Profits would flow through as
capital gains to the son. Father's share of profit would be
paid by SP as a salary bonus (deductible in the son's return).

-2- Sole Proprietorship owned by the father and funded by
a loan from the son. Father lives off loan during project.
Profits show up as capital gains on the father's return. Son's
share of profits would be paid partially by the father's SP
as interest on the loan, and the remaining as a non-taxable
gift from the father. Son's return never sees the Capital Gains.

-3- Partnership, LLC, or S Corp owned 50/50 by the son & father,
funded either by a loan or capital contribution from the son.
Entity would pay salary to father for living expenses. Profits
show up as capital gains on both returns.

Is there anything we're missing here or any special IRS
rules which could make one of these options a Bad Idea?

Thanks.

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