4 ms·

can you explain what the legal mechanism is that makes a $1 house sale illegal? I don't understand how it's different.

by jes5199 14y ago

ChuckMcM 14y ago
Its not illegal, its a "sham" (which is to say the house is worth much more than $1 and the sale has an ulterior motive). Similarly car sales where the car costs $1 but the "handling" charge is $15,000. The sham is that you pay sales tax on the sale price (that was fixed by paying sales tax on the blue book price but I digress).
- rorrr 14y ago
  Sham isn't illegal. I don't understand your complaint. So they used the law in a creative way. Good for them.
danielweber 14y ago
Perhaps not "illegal," but it would nearly always be done in an attempt to bypass taxes. "I sold it to Joe for $1, I have no income tax to report, ha ha!"
- guan 14y ago
  In fact, if the seller paid more than $1 for the house, he can take a nice deduction for the “loss.” In this example, in the US, it will be obvious to the IRS that the transaction is not arms-length, and they might levy gift tax on the fair market value of the house. They already thought of this loophole. There are, in fact, situations where the law is written to look more at intent than technicalities, for example in many areas of US immigration law, or generally in tax law when determining where a person’s residence is. That’s not always a good idea either because it leaves a lot of discretion for government officials and creates uncertainty about what the law is. An uncynical observer of the political system would say that the legislature has already thought of this: they’ve made the law very technical in areas where they want it to be, and less so in other areas.
- joonix 14y ago
  You're mixing up contract law and IRS regulations. The $1 sale is a valid contract, but somebody will likely pay taxes on it, probably the recipient since he received a house at below fair value, which can be considered income.
  - DannyBee 14y ago
    The $1 sale may not be a valid contract, actually, it depends on the state, and whether they are still completely common law or not. Basically, under the restatement views, nominal consideration = no consideration under common law views, nominal consideration = consideration.

can you explain what the legal mechanism is that makes a $1 house sale illegal? I don't understand how it's different.

by jes5199 14y ago

can you explain what the legal mechanism is that makes a $1 house sale illegal? I don't understand how it's different.

Its not illegal, its a "sham" (which is to say the house is worth much more than $1 and the sale has an ulterior motive). Similarly car sales where the car costs $1 but the "handling" charge is $15,000. The sham is that you pay sales tax on the sale price (that was fixed by paying sales tax on the blue book price but I digress).

rorrr 14y ago
Sham isn't illegal. I don't understand your complaint. So they used the law in a creative way. Good for them.

danielweber 14y ago

Perhaps not "illegal," but it would nearly always be done in an attempt to bypass taxes. "I sold it to Joe for $1, I have no income tax to report, ha ha!"

guan 14y ago
In fact, if the seller paid more than $1 for the house, he can take a nice deduction for the “loss.” In this example, in the US, it will be obvious to the IRS that the transaction is not arms-length, and they might levy gift tax on the fair market value of the house. They already thought of this loophole. There are, in fact, situations where the law is written to look more at intent than technicalities, for example in many areas of US immigration law, or generally in tax law when determining where a person’s residence is. That’s not always a good idea either because it leaves a lot of discretion for government officials and creates uncertainty about what the law is. An uncynical observer of the political system would say that the legislature has already thought of this: they’ve made the law very technical in areas where they want it to be, and less so in other areas.
joonix 14y ago
You're mixing up contract law and IRS regulations. The $1 sale is a valid contract, but somebody will likely pay taxes on it, probably the recipient since he received a house at below fair value, which can be considered income.
- DannyBee 14y ago
  The $1 sale may not be a valid contract, actually, it depends on the state, and whether they are still completely common law or not. Basically, under the restatement views, nominal consideration = no consideration under common law views, nominal consideration = consideration.