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Posted by Bill Brown on January 20, 2008, 12:26 pm
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> I sold a residential property in 2007 in a state that imposes a gross receipts
> tax on the commission paid to the agents involved and am wondering if this
would
> be deductable?
>
It reduces your net proceeds on the sale which means in decreases your
gain on the sale or increases your loss.
If it was a personal residence any loss is NOT deductible. Any gain
MIGHT be reduced by the Section 121 exclusion.
The transfer tax is NOT deductible as a separate item on your tax
return.
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Posted by Katie on January 21, 2008, 5:33 pm
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> I sold a residential property in 2007 in a state that imposes a gross receipts
> tax on the commission paid to the agents involved and am wondering if this
would
> be deductable?
>
> Note that this is not an appraiser fee, title fee or similar type of
transaction
> cost.
>
What state are we talking about here? New Mexico? Hawaii? Washington?
It may make a difference.
Katie in San Diego
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Posted by Rick Blaine on January 21, 2008, 7:05 pm
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>What state are we talking about here? New Mexico?
Yes.
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Posted by Katie on January 22, 2008, 12:43 am
Please log in for more thread options > >What state are we talking about here? New Mexico?
>
> Yes.
>
The New Mexico law is interesting because it is not technically a
sales tax. It is really a gross receipts tax that is imposed on the
seller. The seller is allowed to collect reimbursement of the tax
from the purchaser, but is not required to do so, and such
reimbursement appears to be a matter of contract between seller and
purchaser. Even if the purchaser reimburses the seller for the tax,
it is still the SELLER's tax; the purchaser is not the taxpayer.
As a result the tax is applicable, for example, to the gross receipts
from sales to the U.S. Government or to an Indian tribe for services
performed on the reservation. Even when the tax is passed through to
the government or the tribe, it is not imposed on that entity, and
therefore such a sale is not exempt from the tax. MESCALERO APACHE
TRIBE v. NEW MEXICO, 625 F2d 967, 06/05/1980 (cert. denied).
So that made me wonder whether the tax you paid on the real estate
agent's commission would be a deductible sales tax for federal income
tax purposes. After all, it's not your tax liability; the agent is
clearly the taxpayer. I think it is, oddly enough <G>. IRC Sec.
164(b)(5)(B) defines a "general sales tax" as a "tax imposed at one
rate with respect to the sale at retail of a broad range of classes of
items." Notice it doesn't say who the taxpayer has to be, and the NM
tax fits that definition. Sec. 164(b)(5)(G) says, "If the amount of
any general sales tax is separately stated, then, to the extent that
the amount so stated is paid by the consumer (other than in connection
with the consumer's trade or business) to the seller, such amount
shall be treated as a tax imposed on, and paid by, such consumer." So
it appears that as long as the tax was separately stated on the
closing statement, it's considered to be your tax liability, even
though legally it is not yours.
So ... if you kept track of all the gross receipts tax reimbursements
and compensating use taxes that you paid during the year, I think you
could deduct them on Schedule A as sales taxes. However, you cannot
add this item (the tax on the real estate commission) to the table
amount; you'd have to have kept track of everything. (The services of
a real estate agent are not among the items that can be added to the
table amount.) Under the circumstances, while technically I think you
could deduct it as a sales tax, you'd be better off to treat it as a
cost of the sale (which it clearly is), reducing the gain or loss on
the sale transaction. Of course, if this was a sale of your
qualifying personal residence, the gain may be wholly or partially
excludable under IRC Sec. 121, and any loss is not deductible.
Katie in San Diego
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Posted by Rick Blaine on January 22, 2008, 11:03 am
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>The New Mexico law is interesting because it is not technically a
>sales tax. It is really a gross receipts tax that is imposed on the
>seller. The seller is allowed to collect reimbursement of the tax
>from the purchaser, but is not required to do so, and such
>reimbursement appears to be a matter of contract between seller and
>purchaser. Even if the purchaser reimburses the seller for the tax,
>it is still the SELLER's tax; the purchaser is not the taxpayer.
>
(Incredibly comprehensive reply trimmed for space)
>
>Katie in San Diego
Wow. Thank you very much. That was exactly what I was looking for.
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<< ------------------------------------------------------- >>
<< 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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