Commission used to lower purchase price.

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Subject Author Date Commission used to lower purchase price. Dick Adams 05-18-2009  Re: Commission used to lower purchase price. Mark Bole 05-18-2009  Re: Commission used to lower purchase price. Dick Adams 05-18-2009  Re: Commission used to lower purchase price. Stuart A. Bronstein 05-19-2009  Re: Commission used to lower purchase price. Katie 05-19-2009  Re: Commission used to lower purchase price. Seth 05-21-2009  Re: Commission used to lower purchase price. Stuart A. Bronstein 05-21-2009  Re: Commission used to lower purchase price. way222 05-29-2009
Posted by Dick Adams on May 18, 2009, 8:54 pm Please log in for more thread options A man I know proposed the following: * His wife has an inactive Real Estate Broker's license. * They are selling their primary residence and have moved into a rental unit they own. * They are both retired and plan to buy a condo for cash since they won't have enough deductions for a Sched. A. What he wants to do is to reinstate his wife's Broker's license and, at closing, reduce the purchase price by the amount of his wife's commission. He wants to know if there is anyway the commission would be taxable to her? My response was to tell him he was doing it the hard way since it would be cleaner to negotiate the purchase price based on the her not taking the commission. I also suggested that as soon as their offer was accepted, the commission would be unrealized earned income - subject to closing. Thus, they were at risk of penalties and interest if they were audited. This guy has been audited three times in the last 12 years. Am I correct? Dick -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Mark Bole on May 18, 2009, 9:41 pm Please log in for more thread options Dick Adams wrote: > A man I know proposed the following: > * His wife has an inactive Real Estate Broker's license. > * They are selling their primary residence and have > moved into a rental unit they own. > * They are both retired and plan to buy a condo for cash > since they won't have enough deductions for a Sched. A. Usually not a good idea to let the tax tail wag the dog...looking at the bigger picture, does the purchase for cash make sense, given the current state of the home-ownership market, historically low mortgage rates, and prospects for inflation down the road? > > What he wants to do is to reinstate his wife's Broker's > license and, at closing, reduce the purchase price by the > amount of his wife's commission. He wants to know if there > is anyway the commission would be taxable to her? Are you talking about a commission on *selling* the primary residence, or *purchasing* the condo? And out of curiosity, are they going to re-convert the rental they have moved into back into a rental after it is no longer their primary residence? (the new non-qualified use rules might come into play if/when they finally sell it). > I also suggested that as soon as their offer was accepted, > the commission would be unrealized earned income - subject > to closing. Thus, they were at risk of penalties and > interest if they were audited. Are we talking a cash-basis or accrual-basis taxpayer here? P&I would only apply if tax on taxable income was not paid on time. > This guy has been audited > three times in the last 12 years. > > Am I correct? We will take your word for it! ;-) -Mark Bole -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Dick Adams on May 18, 2009, 10:59 pm Please log in for more thread options > Dick Adams wrote: >> A man I know proposed the following: >> * His wife has an inactive Real Estate Broker's license. >> * They are selling their primary residence and have >> moved into a rental unit they own. >> * They are both retired and plan to buy a condo for cash >> since they won't have enough deductions for a Sched. A. > Usually not a good idea to let the tax tail wag the dog...looking at the > bigger picture, does the purchase for cash make sense, given the current > state of the home-ownership market, historically low mortgage rates, and > prospects for inflation down the road? I brought that up too. It went in one ear and out the other. >> What he wants to do is to reinstate his wife's Broker's >> license and, at closing, reduce the purchase price by the >> amount of his wife's commission. He wants to know if there >> is anyway the commission would be taxable to her? > Are you talking about a commission on *selling* the primary residence, > or *purchasing* the condo? And out of curiosity, are they going to > re-convert the rental they have moved into back into a rental after it > is no longer their primary residence? (the new non-qualified use rules > might come into play if/when they finally sell it). The commission is on the condo purchase in South Carolina. He has a real estate license in Maryland, but he purchased and sold rentals - FSBO. Which is how he is selling his primary residence. He's planning to sell this last rental unit that way too. >> I also suggested that as soon as their offer was accepted, >> the commission would be unrealized earned income - subject >> to closing. Thus, they were at risk of penalties and >> interest if they were audited. > Are we talking a cash-basis or accrual-basis taxpayer here? > P&I would only apply if tax on taxable income was not paid > on time. We're talking about $10-20K an he wnats to avoid taxes completely. Dick -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Stuart A. Bronstein on May 19, 2009, 1:32 pm Please log in for more thread options rdadams@panix.com (Dick Adams) wrote: >> Dick Adams wrote: >>> I also suggested that as soon as their offer was accepted, >>> the commission would be unrealized earned income - subject >>> to closing. Thus, they were at risk of penalties and >>> interest if they were audited. > >> Are we talking a cash-basis or accrual-basis taxpayer here? >> P&I would only apply if tax on taxable income was not paid >> on time. > > We're talking about $10-20K an he wnats to avoid taxes > completely. Personally I'd just call it a rebate or reduction in price, because that is, in effect, what it is. I haven't researched the issue, though, so you never know what the IRS might say. Sty -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Katie on May 19, 2009, 2:35 pm Please log in for more thread options wrote: > rdad...@panix.com (Dick Adams) wrote: > >> Dick Adams wrote: > >>> I also suggested that as soon as their offer was accepted, > >>> the commission would be unrealized earned income - subject > >>> to closing.  Thus, they were at risk of penalties and > >>> interest if they were audited. > > >> Are we talking a cash-basis or accrual-basis taxpayer here? > >> P&I would only apply if tax on taxable income was not paid > >> on time. > > > We're talking about $10-20K an he wnats to avoid taxes > > completely. > > Personally I'd just call it a rebate or reduction in price, because > that is, in effect, what it is.  I haven't researched the issue, > though, so you never know what the IRS might say. > > Sty > I don't know how real estate transactions/closings are handled in SC, but presumably there would be some kind of closing statement from escrow or from a law firm or whatever. In California it would go through escrow and if there was a commission it would appear on the buyer's closing statement and she would get a check. It certainly would be income to her. It just seems to me that if there is some kind of closing statement, and she is entitled to a commission, the purchase price would be shown gross and the commission would be a separate line item as an expense of the purchase. In which case it's income to her. Now if you can get the closing statement to show the purchase price net of the commission, and not show the commission at all, it would just be a reduction of the purchase price. At least there would be no documented evidence that she received a commission. Unless somebody issues her a 1099! Katie in San Diego -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted Why Tax rate different form purchase price? November 17, 2006, 1:39 am Stock Sale Problem Establishing Purchase Price October 2, 2007, 10:09 pm Stimulus and Amended Return with much lower tax liability April 14, 2008, 10:46 am Can you call a rental a 1st home for a lower rate on a mortgage? April 16, 2006, 2:48 am OID and Base Price of a CD February 21, 2009, 2:53 pm Commission on IRA Trading February 19, 2009, 6:46 pm What's the Sales Price on a Foreclosure? 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