Scams with down payments: The IRS is on the Lookout

Posted By Team iBizExpert On February 10, 2022 06:47 AM Hits: 63

Getting the money for the down payment on a house can be a big challenge. If you are trying hard to save up money, be careful, because the IRS is going after scams involving down payments.

Scams with down payments: The IRS is on the Lookout

Charitable groups do not have to pay taxes. This happens when the IRS recognises an organisation as a tax-exempt charity under section 501c3 of the tax revenue code. Most charitable organisations are real, but some are really just businesses that broke the rules to get tax-free status. The IRS doesn't like these kinds of groups and usually takes steps to shut them down.

At the moment, the IRS is looking at more than 180 tax-exempt organisations that help homebuyers with their down payments. In particular, the IRS is looking into a seller financing plan that it thinks might not be a good idea. The plan works when a buyer doesn't have enough money for the down payment that a lender requires. In exchange for getting a tax break, the seller agrees to give the money to a good cause. The group then gives the buyer a loan for the amount needed for the down payment. Different strategies will look different, but this is the general idea.

The IRS thinks this is a way to break the rules about giving to charity. It also seems to be working with HUD and lenders to find these kinds of deals, since lenders say the strategy is a scam. If the lenders knew that the buyer couldn't make the minimum down payment, they wouldn't give the loan, right? Since this plan makes both the IRS and the lending agencies unhappy, you should avoid it at all costs.

At this point, it is not clear how the government will treat the seller and buyer in this kind of deal. The IRS seems to be most interested in the organisations that act as middlemen for charities. Eventually, sellers will no longer be able to claim relevant tax deductions and will be more likely to be audited. It's not clear what will happen to the buyer, but the lenders may try to call back loans or ask for more security. No matter how you look at it, these ways for the seller to pay the down payment should be avoided.

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