real estate tax question


J

Jimmy.Miller

I had to foreclose on an investment property using a real
estate attorney and got the property back. Now I'm in the
process of selling that property using a title company (not
connected at all to this attorney). This all occured in a
very short time apart and in the same year. Two weeks ago I
got a invoice from the Attorney for his services rendered
and now I've got a closing set for this week. The Title
Company had to ask my real estate attorney for a document to
clear any title commitment problems and now this attorney
has asked the title company to include his billing for
services rendered during the foreclosure (he has no services
rendered for the sale) on the closing statement.

Does it matter from a tax point of view (deductions on
federal tax statements) if the attorney's billing is
separate or on the closing statement for the sale of this
house? Inotherwords does the writeoff amount change if the
attorney's billing is on or not on the closing statement ?

I hate to bother to tell the Title Company to remove the
attorney's billing if the writeoff will be the same tho the
services rendered for the foreclosure had nothing to do with
the sale of the property. And yes I'm planning to pay the
attorney whether his billing is on the closing statement or
not (tho I think this was clever of him to do it this way to
ensure payment in full).

Another question comes to mind (I plan on asking the closer
this question) is what gives the attorney the right to
include his billing without my permission on the closing
statement since his services had no connection to the sale
of the property? I think I have just as much right
therefore to ask to have it removed if I want it to be tho
if the writeoff is the same I won't bother.
 
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G

Gary Goodman

(e-mail address removed) says...
I had to foreclose on an investment property using a real
estate attorney and got the property back. Now I'm in the
process of selling that property using a title company (not
connected at all to this attorney). This all occured in a
very short time apart and in the same year. Two weeks ago I
got a invoice from the Attorney for his services rendered
and now I've got a closing set for this week. The Title
Company had to ask my real estate attorney for a document to
clear any title commitment problems and now this attorney
has asked the title company to include his billing for
services rendered during the foreclosure (he has no services
rendered for the sale) on the closing statement.

Does it matter from a tax point of view (deductions on
federal tax statements) if the attorney's billing is
separate or on the closing statement for the sale of this
house? Inotherwords does the writeoff amount change if the
attorney's billing is on or not on the closing statement ?

I hate to bother to tell the Title Company to remove the
attorney's billing if the writeoff will be the same tho the
services rendered for the foreclosure had nothing to do with
the sale of the property. And yes I'm planning to pay the
attorney whether his billing is on the closing statement or
not (tho I think this was clever of him to do it this way to
ensure payment in full).

Another question comes to mind (I plan on asking the closer
this question) is what gives the attorney the right to
include his billing without my permission on the closing
statement since his services had no connection to the sale
of the property? I think I have just as much right
therefore to ask to have it removed if I want it to be tho
if the writeoff is the same I won't bother.
How the lawyer gets paid doesn't affect the tax situation at
all.

As to whether he is allowed to have his fee handled that
way, I don't know. He may believe that he is making things
easier for you.

Gary
 
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G

Gene E. Utterback, EA

I had to foreclose on an investment property using a real
estate attorney and got the property back. Now I'm in the
process of selling that property using a title company (not
connected at all to this attorney). This all occured in a
very short time apart and in the same year. Two weeks ago I
got a invoice from the Attorney for his services rendered
and now I've got a closing set for this week. The Title
Company had to ask my real estate attorney for a document to
clear any title commitment problems and now this attorney
has asked the title company to include his billing for
services rendered during the foreclosure (he has no services
rendered for the sale) on the closing statement.

Does it matter from a tax point of view (deductions on
federal tax statements) if the attorney's billing is
separate or on the closing statement for the sale of this
house? Inotherwords does the writeoff amount change if the
attorney's billing is on or not on the closing statement ?

I hate to bother to tell the Title Company to remove the
attorney's billing if the writeoff will be the same tho the
services rendered for the foreclosure had nothing to do with
the sale of the property. And yes I'm planning to pay the
attorney whether his billing is on the closing statement or
not (tho I think this was clever of him to do it this way to
ensure payment in full).

Another question comes to mind (I plan on asking the closer
this question) is what gives the attorney the right to
include his billing without my permission on the closing
statement since his services had no connection to the sale
of the property? I think I have just as much right
therefore to ask to have it removed if I want it to be tho
if the writeoff is the same I won't bother.
You said you had to foreclose on a property. This leads me
to believe that you were carrying a note of some sort, which
makes me wonder how you reported the details of the original
sale. This should have consisted of some gain, either short
or long term, and likely an installment agreement.

I've had a few clients foreclose on sales in the past and
every single one of them was mortified when I explained to
them that when the foreclosed we had to recalculate their
gain. For example, INITIALLY the gain was calculated as the
amount you received, or would receive, over and above your
cost in the property. So if you owned a property that cost
you $120,000 and you sold it for $360,000 you'd have a gain
of $240,000 - lets assume the sale price was to be paid over
12 months at $15,000 per month - $5,000 per month is tax
free return of your principal investment and $10,000 per
month is your taxable gain. At the end of year one, you
would have received $180,000 total, $60,000 was return of
principal and $120,000 was taxable gain. You paid tax on
the gain and you understand that.

You paid no tax on the $60,000 that was the return of your
principle investment. However, now that you have foreclosed
on the property you now have the money AND the property and
I'd bet you can see where this is headed. You now have to
report the $60,000 has taxable income - because you got your
original investment back AND you are keeping the money you
received. The really nasty part is that you will owe tax on
the $60K whether you got any cash or not.

You also have to report the second sale. But the good news
here is that you do get to adjust your basis in the property
for the money you spent to get it back.

I would recommend you seek out a good tax pro before you
finalize this deal.

Gene E. Utterback, EA
 

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