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Financial Planning / Tax Strategies


Subject:  Re: Home sale selling price reduction issues Date:  8/18/2010  10:11 AM
Author:  Wradical Number:  110911 of 127315

Now we have to accept less for the home. Instead of $910,000, we will receive a total of $850,000, a reduction of $60,000.

Why? Is that in the original contract? You have a mortgage for $660,000 on a house worth $850,000. There's still over 20% equity. A lot of banks would like that deal. Why should you take less? And the balloon isn't due until 2012. Why settle for less early? Just because they make you a lower offer? That's your call, but only if your primary reason is to get the cash earlier rather than later. You hold the mortgage, and the buyers have $250,000 of equity in it. They're not going to walk away from that. You are not liable for the fact that the market went down.

As to your tax question: you don't get to amend the return for the year of sale for subsequent adjustments to an installment sale.

You will, however, have a capital loss on disposition/settlement of the installment obligation.

You basis in the mortgage is 616,440 ($660,000 less the GP% of 6.6%)
You will receive the reduced amount of 600,000
For a loss of 16,440
And guess what - that's equal (with rounding) to the gain reported in the earlier year(s).

This is spelled out in IRS Pub. 537, Installment Sales.

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