Buyer reimbursed tax

[RitaB]

Buyer agreed to reimburse seller of real estate (land, not business, long term gain) for his tax on the gain. The reimbursement came in Feb 2009. The sale happened Nov 2008.

Would you report the reimbursement as a short term captital gain, long term capital gain, 1040 line 21 (there IS a line for "other reimbursements" on my software), or someplace else?

I AM researching, but thought I'd risk looking stupid and ask. You guys don't even know me anyhow, right? Not like I will see you at Wal-Mart tonight and you can point at me and laugh or anything.

[BHoffman]

Hi Rita - I think the extra amount was simply an increase in the selling price of the property and would treat it as that.

[RitaB]

Yeah, the only problem

Is the sale happened 2008. Taxpayer didn't tell me about the reimbursement till now, or I would have added it to the selling price last year. Think I should amend 2008, even though the payment came in 2009?

[BHoffman]

Hi Rita - Is your client the seller and reporting on a cash basis? I don't know if you can or would want to amend 2008 to reflect an installment sale.

[RitaB]

Oh, you're good

But, wow, I really don't wanna do that installment sale stuff. But, if that is the correct tax treatment...

Yes, my client is the seller, cash basis.

[BHoffman]

IRC Sec 453 and Pub 537 deal with installment sales.

http://www.taxalmanac.org/index.php/Special:Search?search=453

I think your client has to report under the installment agreement method unless an election was made.

Make sure to take a glance through the Treasury Regs. They usually are more readable and sometimes contain examples. Ignore the Rev. Rul. stuff.

The form itself is easy to compute and prepare.

Here is the Pub:

http://www.irs.gov/publications/p537/index.html

[RitaB]

Yes, I have done a few

I think it's 6252? Anyhow, I appreciate the help, and you make perfect sense! Thanks!

Wow, I think I'll have to figure imputed interest, too, if I recall.

[JON]

I do not think

you would go to jail by reporting it as a 2009 gain. Feb means you had to be a good tax person to have finished the return, but if truthfully the balance of the payment had to due with the completion of his income tax return in the future from the sale of the real estate I think it became another event, but taxed as the gain was. I have seen where the price at closing is adjusted up by estimates of the income tax. This is the first time I have ever heard of the exact amount of the increase was dependent on the completion of an income tax return in the future. It would kind of throw off tax planning if you would have told him in the year of the sale to dump all stocks that would have a loss or have a large capital loss carryforward. 2009 it would be a contingent payment with no basis against it. I wouild have felt better if I had prepared the return and it was July when I got the payment.

[RitaB]

Thanks, Jon

I amended 2008 to report it as an installment sale, and the final payment occured in 2009. These people didn't tell me anything about the buyer paying the tax until right now. Sure would have been easier on me, if I had known. Oh, well, I have learned something, and hopefully they have, too.

The lawyer who drew up the contract, which they didn't show me till now, really does not understand taxes. Said the buyer would pay "capital gains taxes on PORTION of property acquired." Huh? He put PORTION in capital bold letters. Like that would make it clear.

It kills me when somebody who makes a lot more than I do puts out some meaningless statement that is supposed to cover a tax issue.

[BHoffman]

It kills me when somebody who makes a lot more than I do puts out some meaningless statement that is supposed to cover a tax issue.

Most lawyers put out meaningless statements that are supposed to cover their keesters.

[RitaB]

BHoffman, that was funny

You are absolutely right. Some also think they don't have to bother with little things like accuracy.

I'm going thru a messy divorce and my husband's attorney stated that his annual income is approximately what was on his Sep 28 check stub. Hello? He worked free gratis for Oct, Nov, Dec?

I mean, put some thought into it, guys.