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Author Topic: How do seller-to-buyer credits adjust basis?  (Read 5891 times)

Offline leaftye

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How do seller-to-buyer credits adjust basis?
« on: June 21, 2006, 02:24:34 pm »
In many closings I've seen, the seller will credit the buyer in recurring and non-recurring costs.  As I understand it, costs that are required to close (recording, title, escrow) do adjust basis, but some things (loan fees, hazard ins.) do no.  How does do the taxpayers on both side account for this on their tax returns when the credit is greater than the buyer's closing costs?

Eugene

Offline mcwagner

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Re:How do seller-to-buyer credits adjust basis?
« Reply #1 on: June 22, 2006, 10:00:12 am »
I usually go by who pays what on the HUD-1.  I'd like to know if others do it differently.  Dave?

If the credit is bigger than the expenses paid, that's seller's concession and comes out of the sales price (lowers gain).
Mark Wagner, CPA, LLC
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Offline Dave T

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Re:How do seller-to-buyer credits adjust basis?
« Reply #2 on: June 23, 2006, 11:00:40 pm »
The seller's cost basis does not change regardless of presence or absence of seller concessions.  Since the seller's net sale price is reduced by the amount of seller concession given, the result is the seller has a lower profit -- but the seller's cost basis is unaffected.

The buyer's cost basis is determined by what the buyer ACTUALLY pays for the property.  A concession from the seller reduces the amount actually paid, and, thus the buyer's cost basis.  In the normal course of events, certain closing costs are adjustments to basis (such as appraisal, survey, credit report, attorney fee, recording costs, etc), while others are expensed (e.g.,property taxes, mortgage interest).  If the seller pays all these costs for the buyer, then the buyer gets neither the adjustment to basis nor the itemized deduction.  His cost basis is determined by whatever he actually paid for.
« Last Edit: June 25, 2006, 11:37:52 am by Dave T »

 




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