Can the concession to a buyer be deducted from the seller's cost basis (the capital gain I'd have to pay taxes on)? I'm selling my home.

Forum|Forum|6 years ago
June 4, 2019
17 replies
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I'm selling my home and need to know if I will have to pay capital gain taxes on a concession to the buyer.

TurboTax Deluxe Online

Employee

What type of concession?
The gain on the sale of a personal residence is calculated as follows: Sale Price minus Expenses of sale minus Adjusted Basis (Purchase price plus cost of improvements)

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cuantoesAuthor

Employee

The concession will be added to the purchase price so buyer can cover closing costs as they are short on cash. For example, the home is worth 250K but the mortgage buyer will obtain is 300K (if appraised at that amount). I will get only 250K. Can the 50K concession be added to the Adjusted Basis so I don't have to pay capital gain tax on that amount?

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TomYoung

Employee

You pay income tax on the gain and that gain is calculated as Net proceeds to you minus your Adjusted basis.

If what you're saying here is that you want to have a "stated" selling price of $300K but will only receive $250K because of a "concession", e.g., an agreement that you'll contribute $50K in order to fix the foundation, then that $50K can be view as an addition to your basis or a reduction of your proceeds. Either way your profit is the same.

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sschofield

If the concession was for appliances for the home will that be an improvement the same as the foundation regarding taxes?

Critter

Employee

Any concession is added to the cost of sale ... it is just that simple. You MUST report the total sale price listed on the 1099-S or you WILL get an IRS letter in a year or 2.

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cuantoesAuthor

Employee

I do not want/need to have the full 300K "stated" as a selling price. I simply don't know if I should sell given this concession the potential buyer is requesting since that's the only way they can buy given they are short on cash. I'm fine if in the end I'm netting the asking price of 250K and their mortgage is 300K, but I don't want to pay taxes on an additional 50K I am not receiving. Btw, the numbers are fictitious and I am aware of the long-term real estate capital gain exclusions for singles and couples. The capital gain would exceed those numbers, thus my trying to figure this out. I'm trying to find out if the "stated" price can be only the 250K I'm receiving from seller, or what ways exist for accomplishing that. Thanks!

DoninGA

Employee

Your Sales price is what is paid by the buyer to purchase your home. So if your home was on the market for 300K and you actually sold the home for 250K then that was your decision and that is the price that is going to entered on your Purchase and Sale Agreement signed by both you and the buyer. It is the price that is going to reported on your Closing Disclosure documents prepared by the closing attorney.

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TomYoung

Employee

If the appraisal will support the issuance of a $300K mortgage but you sell the house for $250K then the $250K is your starting point for calculating gain or loss. The mortgage the buyer obtains is irrelevant.

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cuantoesAuthor

Employee

Do you advise I speak with an attorney? The home is on the market for 250K but the buyer wants to borrow 300K with me granting a 50K concession. Before I agree I'd like to be 100% sure I will not have a tax obligation on the 50K concession. Not sure if 250K or 300K needs to be on the contract for buyer to get the 300K mortgage. I was told by my broker that I will not even see the 50K. I would only receive the 250K (minus broker fees, etc.). I wouldn't be receiving 300K and then writing a 50K-check back to the buyer. Again, I just want to be 100% about my tax obligation on the 50K given this scenario. Many thanks to all!

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TomYoung

Employee

Your obligation as a taxpayer is to correctly report your taxable income. If you do that then you're pretty much bullet-proof with the IRS.

In real estate transactions the word "concession" typically refers to the seller agreeing to pay something on behalf of the buyer, like fixing the foundation as I mentioned, paying the property tax the buyer would otherwise owe, and so forth. So, mechanically, I'm not sure what form this concession will take in your contract. Maybe we're really talking about a "gift of equity" here because as you're selling to a relative or old friend.

But it's hard to comprehend how a house with a Fair Market Value asking price of $250K can support a mortgage of $300K.

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Slimwool

This is a terribly worded and wholly inappropriate answer. A sellers concession helps the buyer to manage closing costs. There is usually not a repair involved so you’ve moved this entire issue to another category and done so with arrogance. Saying “reporting it correctly to the IRS” helps no one. I had the same question as OP. The concession - for your future reference - gets tacked onto the sale price of the house and then goes to the buyer for closing. I’ve read the responses for 5 minutes and cannot go on as the general hostility while misunderstanding the question is really shameful. Please don’t respond. This was more than enough -

Carl11_2

Employee

"Do you advise I speak with an attorney? The home is on the market for 250K but the buyer wants to borrow 300K with me granting a 50K concession."
I think I can see what's going on here. The buyer is probably not being honest with their lender and is trying to get $50K more as a mortgage loan by telling their lender the selling price is $50K more than it really is. Do not agree to this, or you "could" be implicated in the future in what I see as potential loan fraud.

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xmasbaby0

Employee

And when the house is appraised the whole deal might tank. Speak with an attorney.

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**