Failed Real Estate Sale and Actual Sale in the same year - treatment of escrow question.


John Baker


We sold our house in 2005, but there is a potential tax

Initial buyers backed out 3 days before closing, and we got
the escrow. We then reduced the price of the house by about
the amount of the escrow, and the house sold (for a price
just below asking). Both these events took place in the same
year. Based on the $500,000 joint exclusions coupled with
the investment in improvements and original price, the final
sale price of the house PLUS the escrow would be not be
taxed, and no tax would be due.

However, I posted this scenario on another web site(before
the final sale took place), and got a set of conflicting
responses. I don't want to pay tax on the escrow, and have
been advised (not by a lawyer) that I should just add it to
the sale price of the house, but I do want to do what's

The questions is,,.. what's right?

Thanks in advance

John Baker
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