If you made a large sum of money and immediately bought a house with that money before that money was taxed how would that work?
- Coffee DrinkerLv 72 months agoFavorite Answer
Answer assumes USA tax law:
It depends on the source of the money. If it's something like an inheritance, life insurance death benefit or a withdraw from a Roth IRA or Roth 401k plan (after age 59.5), then the money isn't taxable anyway so you can do whatever you want - including buy a house - and there are no tax consequences.
If the money was taxable income then you'd owe tax on that large sum of money at the end of the year when you file your tax return. If you didn't have enough money left to pay the tax bill because you spend it all on a house then the IRS would put you on a payment plan to pay the tax bill with interest and penalties added. If you didn't make those payments the IRS would start collections against you which could involve things like garnishing your wages or seizing the house.
There are no special deductions for spending money on a house that get you out of the taxes owed on a large amount of taxable income. Any money spent on property taxes or mortgage interest would be deductible but not the actual purchase price of the house.
And in the USA income tax system you cannot get out of paying tax simply by spending the money before the IRS has a chance to touch it.
- LLv 52 months ago
Taxes are ALWAYS deducted BEFORE you receive the money.
- 2 months ago
It dosent matter what you worth it
- SlickterpLv 72 months ago
You'd still get taxed on the money, it doesn't matter what you do with it.
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- hihi!Lv 72 months ago
OK. Let's make up numbers. You win and get $1MILLION. You buy a $1million house. Tax would be $100,000 on your winnings. So if you don't have 100 thou kicking around in your drug dealing fund, you could take out a $100K mortgage on your million buck house and pay it over 12-15 years. A fool signs away on a 30-year.
- 2 months ago
The IRS is faster than most real estate agents. Our second house purchase only took about a month. Your winnings wouldn't be likely to be in your hands quicker than that - if you're smart. A person who is smart would consult a lawyer and a financial advisor to maybe set up a trust, and to protect the newfound wealth from lazy, no-good relatives and friends, *before he or she stepped forward to claim the money.*
Before the windfall reached you, *someone* would ask if you wanted estimated taxes withheld. Only an idiot would say no.
- JudyLv 72 months ago
You'd still owe the tax on th money so would have to come up with it.
- ibu guruLv 72 months ago
How are you going to pay your taxes? You're going to have to cough up. So don't spend all that money on the house.
- Wayne ZLv 72 months ago
You would still owe the tax. Buying a house doesn't change that. You are just swapping one asset for another.
Option 1) Enter into a payment arrangement with the IRS.
Option 2) Take out a mortgage on the property to pay the taxes
Option 3) Sell the house and pay the taxes.
- JJLv 72 months ago
The tax applies the moment you receive it so you would owe the tax later on. But meanwhile you've made an excellent choice with what to do with the money, so the tax shouldn't be a problem. Myself, I'd spend it all on pizza and beer, owe the tax and have nothing to show for it.