I think so, but no idea how much. Father is selling a commercial warehouse to his son and financing it. No one has a good idea what the warehouse would bring on the open market. Since no one went to the bank to borrow money, the property hasn't been appraised.
Facts are as follows:
Original Value $1,125,324
Accumulated Depreciation $488,705
"Book" Value on books of father $637,619
and this in no way is any indication of the worth of the warehouse.
More facts:
Father is financing the sale, and asking $50,000 per year for 10 years.
The $500,000 maturity value has a present value of $392,839 if discounted
at 5% (probably the minimum imputed interest rate they can get away with).
Additionally, son will assume father's existing mortgage of $375,000.
This makes the purchase price for the warehouse $767,839. Father reports
a capital gain of $130,000 on the installment basis, but the agreed-upon
amount of $767,839 is also no fair indication of the worth.
In absence of an appraisal, this customer is looking to me to just simply
book the sale at $767,839 with no further repercussions.
The original value of $1,125,324 is for three sections of this warehouse, the
oldest of which is 14 years old, and the latest section built 6 years ago.
The warehouse was built primarily in a small town of 10,000 to store steel,
and the two largest steel consuming plants in town have recently shut down
and moved to Mexico. As a result, capacity usage has dwindled from 90%
to barely 50%, as a few smaller new customers have been engaged.
For those of you who are still awake during this long and boring post, are there
any audit guides used by the IRS to assess FMV in a situation like this?
If we do our job as tax preparers and have the trust of our clientele, we will
often be confronted by situations where we are called upon to be judge and
jury. I am not a skilled appraiser, and I believe there is a potential liability
if I don't explore the possibility that a gift has been made here. But before I
can place a value on a gift, again I have to know what the property is worth.
What if we added $240,000 to the selling price of the property, and over the
course of the next 10 years, Dad makes a cash gift of $24,000 annually to son
and spouse? Yes, it is a contrivance, but I think it would fly.
Facts are as follows:
Original Value $1,125,324
Accumulated Depreciation $488,705
"Book" Value on books of father $637,619
and this in no way is any indication of the worth of the warehouse.
More facts:
Father is financing the sale, and asking $50,000 per year for 10 years.
The $500,000 maturity value has a present value of $392,839 if discounted
at 5% (probably the minimum imputed interest rate they can get away with).
Additionally, son will assume father's existing mortgage of $375,000.
This makes the purchase price for the warehouse $767,839. Father reports
a capital gain of $130,000 on the installment basis, but the agreed-upon
amount of $767,839 is also no fair indication of the worth.
In absence of an appraisal, this customer is looking to me to just simply
book the sale at $767,839 with no further repercussions.
The original value of $1,125,324 is for three sections of this warehouse, the
oldest of which is 14 years old, and the latest section built 6 years ago.
The warehouse was built primarily in a small town of 10,000 to store steel,
and the two largest steel consuming plants in town have recently shut down
and moved to Mexico. As a result, capacity usage has dwindled from 90%
to barely 50%, as a few smaller new customers have been engaged.
For those of you who are still awake during this long and boring post, are there
any audit guides used by the IRS to assess FMV in a situation like this?
If we do our job as tax preparers and have the trust of our clientele, we will
often be confronted by situations where we are called upon to be judge and
jury. I am not a skilled appraiser, and I believe there is a potential liability
if I don't explore the possibility that a gift has been made here. But before I
can place a value on a gift, again I have to know what the property is worth.
What if we added $240,000 to the selling price of the property, and over the
course of the next 10 years, Dad makes a cash gift of $24,000 annually to son
and spouse? Yes, it is a contrivance, but I think it would fly.
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