Tax implications for using personal home equity for a flip

[Christopher Leavitt]

Hi all, I have a rather unique situation here. This is a situation in Massachusetts. I took out a refinance on my personal house to pay off my girlfriend's (now fiancée) house due to hardship on her part. I placed a personal mortgage with me as the mortgagee for $170,000 on the property to protect me in case something happened in the relationship. I had it written that she is to pay $1,000 a month until paid back with no interest. I never actually required her to pay, it was just for the mortgage documentation. We rehabbed the property and it's selling for $330,000. At the closing signing I will receive my $170,000 back and she will recieve the balance that we will split. At the time when I did this I figured the $170,000 wouldn't be taxable. I am planning on using it to pay back the original loan on my personal property and we are using the profit she will have to pay off other debts and bring us back to a debt free life. I took this loan against my property in April of this year, 2023.

My question is, will that $170,000 lump sum payment back to me be considered taxable? I did not profit off that original amount, I simply used it to stop the property from going into foreclosure. The profit ($160,000) will be in her name and will be under the one time $250,000 single person taxable clause on real estate sales. 

Any help is appreciated. 

Thanks all.

[Wayne Brooks]

@Christopher Leavitt You didn’t do a flip….you simply lent money and got paid back. I don’t think minimum irs imputed interest would apply, but I’d check into it.