Business Rental Sale

[Justataxguy]

Client sold business building last year he had rented out for many years. Says he originally built it in the 1970's, but then signed it over to someone in the late 80's early 90's to borrow money to improve the place and then got it back in 1996 according to property records. He is now having a fit because he can't claim what he says he put into it in the early years and is afraid of having to pay capital gains on the sale. He is one of those PITA clients who is always looking for his taxes done cheaply, doesn't get sent reminders or newsletters, but keeps coming back. As I have done very few property sale returns I am thinking I will refer him to someone more qualified than myself in this area an d hopefully be done with him.

In case I can't though, what else determines actual basis in the property besides the 1996 cost? Like I said I have done very few of these. Thanks!

[Bees Knees]

My guess is the original sale was an installment sale and the 1996 transaction was a foreclosure and repossession of that original sale. Thus the 1996 repo was a taxable transaction to your client. You need to see the tax return for 1996 (and all prior year returns during the installment sale) to determine the gain or loss your client realized in that year.

In general, the original basis goes back to your client, adjusted for prior year gains or losses claimed on the tax returns for the installment sale and repo along with depreciation recapture and all that other good stuff. It’s a very complicated transaction to deal with - one you cannot do correctly without seeing ALL prior year returns.

I might add this is no return that should be done through PITA. At a minimum, assuming you have access to all records and prior year tax returns, it’s at least a $500 return.