Sale of personal residence - twice.


P

paulthomascpa

New client, so I'm missing some history.

Taxpayer built home in 1995ish and resided in that home as their primary
residence till 2005. Sold home in 2005 to a relative (if that matters) with
owner financing, ie: monthly payments to the taxpayer. Relative "defaults"
on payments and taxpayer takes back the home and sells it in 2011. Taxpayer
did not live in the house since 2005, ie: does not meet the 2 of 5 year rule
for the 2011 sale.

I know that you adjust the basis down for the payments received, and that
adds to the gain on the house sale in 2011.

The home sale in 2005 was a qualifying sale for the gain exclusion. No
problem.

I'm seeing the resale as a taxable event, unless someone knows something
that would extend the gain exclusion to the second sale of that home.

Any help on this is appreciated.
 
Ad

Advertisements

R

removeps-groups

I know that you adjust the basis down for the payments received, and that
adds to the gain on the house sale in 2011.
Don't you only adjust the starting basis (value home was sold for in 2005) down for only the PRINCIPAL portion of payments received?
The home sale in 2005 was a qualifying sale for the gain exclusion. No
problem.

I'm seeing the resale as a taxable event, unless someone knows something
that would extend the gain exclusion to the second sale of that home.
I don't see anything.
 
L

LoTax

Neither do I, but it couldn't hurt to ask.

Thanks,
Paul - something that *might* extend the gain exclusion:
There is an answer to your question in IRC Section 1038. You need to
read that section, *all* of it; you will find that the answer depends
on the *timing* of the repossession and the resale.
 
Ad

Advertisements

S

Stuart A. Bronstein

paulthomascpa said:
Neither do I, but it couldn't hurt to ask.
One thing occurs to me. You said the taxpayer "took back" the home
when the buyer defaulted. How and where exactly did that happen?

In some states when someone defaults the lender doesn't
automatically get the property back. Instead it gets sold to the
highest bidder, with the lender getting the proceeds to satisfy his
debt. Anything received over that amount goes to the buyer.

In that case the sale of the house the second time satisfies the
first debt, so should be taxed as received in the first sale.

___
Stu
http://DownToEarthLawyer.com
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top