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Subject Author Date
Is this to be claimed as income? ollie24018 03-21-2008
Posted by Stuart Bronstein on March 22, 2008, 5:33 pm
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> Bill wrote:
>> taxlover@yahoo.com (Taxlover) posted:
>>
>>>> Yes. In effect, your son sold his property, but
>>>> then permitted the buyer to withdraw from
>>>> the contract in return for a $15,000 fee. That
>>>> is income and should be reported. I would
>>>> suggest it might be classified as "other
>>>> income" and reported on line 21 of Form
>>>> 1040.
>>
>>> Couldn't it be thrown in with what he
>>> eventually sells his house for, paying capital
>>> gains on it as appropriate?
>>
>> Yes it possibly could, in the event that occurs within the same
>> tax year.
>
> I'm of a different opinion, Bill, since this was a separate
> transaction which will have occurred well before the (eventual)
> sale of the house. Doesn't matter that it might be in the same
> year.

I agree with you, Harlan. I think an analogous situation would be
writing call options on stock you own. Assuming the call expires
unused, do you claim that as income when received, or as part of the
sale price in the year when it is eventually sold?

Stu

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Posted by Rich Carreiro on March 22, 2008, 7:27 pm
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> I agree with you, Harlan. I think an analogous situation would be
> writing call options on stock you own. Assuming the call expires
> unused, do you claim that as income when received, or as part of the
> sale price in the year when it is eventually sold?

Neither. If a written call expires worthless, you have a short-term
capital gain which belongs to the tax year in which the option
expired.

If instead the option is exercised against the stock you own,
the option premium is added to the sales proceeds of the stock
that was called away from you.

--
Rich Carreiro rlc-news@rlcarr.com

--
<< ------------------------------------------------------- >>
<< 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 ollie24018 on March 24, 2008, 2:44 pm
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> Bill wrote:
> > taxlo...@yahoo.com (Taxlover) posted:
>
> >>> Yes. In effect, your son sold his property, but
> >>> then permitted the buyer to withdraw from
> >>> the contract in return for a $15,000 fee. That
> >>> is income and should be reported. I would
> >>> suggest it might be classified as "other
> >>> income" and reported on line 21 of Form
> >>> 1040.
>
> >> Couldn't it be thrown in with what he
> >> eventually sells his house for, paying capital
> >> gains on it as appropriate?
>
> > Yes it possibly could, in the event that occurs within the same tax
> > year.  Frankly, I was reflecting the dire real estate market conditions
> > -- which undoubtedly led to the original cancellation event -- and
> > assumed there was enough doubt about a replacement buyer to plan for
> > handling the status quo situation.
>
> I'm of a different opinion, Bill, since this was a separate transaction
> which will have occurred well before the (eventual) sale of the house.
> Doesn't matter that it might be in the same year.
>
> For a client of mine, I would list it as you first said, "other income".
>
> ChEAr$,
> Harlan Lunsford, EA n LA
>
> --
> << ------------------------------------------------------- >>


I believe the concensus is that this payment needs to be claimed as
ordinary income. I will pass along this advise.
I don't believe the IRS will have the ability to have known of this
transaction but I'm sure they will be grateful of his honesty and
willingness to declare. That is the way he was brought up.
Thank you for your time and inputs.

--
<< ------------------------------------------------------- >>
<< 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. >>
<< ------------------------------------------------------- >>

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