Gift tax on investment property bought below appraisal value from a non-related person?
I have a friend who I am purchasing an investment property from at the same price they paid for it but the appraisal value is about a 1/3 higher than what I will pay for it. Will the seller owe gift tax on the difference? I am in the U.S. and the investment property is in a Colorado LLC.
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If the sale is at arms length, then no gift tax is due because that would be the fair market value (FMV).
If however the friend can sell it for more, but chooses to give you a discount - he might be liable for gift tax.
Also, if the sale is at loss (and it sounds like it is from what you describe), the seller might not be allowed to deduct the losses to the extent of the discount given over the FMV.
I suggest taking this up with a Colorado-licensed CPA or EA for a proper tax advice. This is a tricky situation, and you (and especially your friend) may find yourself in some trouble later if you do that without a proper legal and tax counsel.
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