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.

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Carl11_2

Employee

Generally, a lender requires as an absolute minimum that the buyer put at least 15% down. (more commonly, 20%). So I get the impression the buyer is telling the lender the purchase price is $300K, since 80% of that is $240K. I think they only have $10K to put down and not the necessary 20% which would be $50K. Or if 15%, they would need to put down $37.5K.
This is loan fraud and the buyer will be implicated in this, if this is "in fact" what is going on here.
More than likely though, this deal would fall apart at the closing, if the lender's appraisal didn't kill it first.

A

agada

Many lenders now do not require 20% and a semi-decent borrower can get it down to 3-5%. I recently closed on a house with Garden State Mortgage and I got 5% down and the lender covered much of the closing costs. Of course, if you are under 20% you will get hit with PMI costs every month until you achieve 20% equity.

Now I am trying to sell my old house and everyone is asking for seller concessions. Two friends I know also received money from the seller to cover their closing costs. However, the seller concession will appear on any closing docs and a large seller concession which goes beyond the closing costs will raise red flags with the lender.

As you do point out, this can create problems with the appraisal since no bank will offer more of a loan than the house is worth and that is where this approach can fall apart.

O

Opus 17

Employee

If the buyer or seller's attorney are honest, the concession will show up on the HUD-1 and the bank will know about it as well. Small concessions are not unusual...it may be easier for the buyer to make minor repairs or move in if you have a $100,000 mortgage and a $2000 concession rather than a $98,000 mortgage. As long as the appraisal and buyer's income support the larger mortgage, there's no problem. I think some of you are over-thinking the question. (Too many bored SuperUsers and too few questions this time of year 🙂

Completely agree.

Employee

"Btw the numbers are fictitious..." So we do not know if the seller is really talking about a few thousand dollars of fix a leaky pipe chump change or that $50K he mentioned.

**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.**

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Anonymous

is the potential buyer wanting you to do the concession under the table. that is, the sales document will show the sales price as $300,000 but no concession. and later you give back the extra $50,000. I wouldn't do it. you may be getting yourself into legal trouble, but talk to your attorney. bankers are not dumb. they will see the closing statement and if the $50k is on there, they'll realized that the mortgage being sought is above the selling price. and if the property is really worth $300K why are you selling for $50K less?

C

cuantoesAuthor

Employee

Thank you all! The transaction is legitimate. The concession will not be under the table. My broker spoke with an attorney earlier today and the latter indicated that as long as the concession is structured in the offer it should be fine.

Carl11_2

Employee

Smart move getting legal representation. That way, you "know" you're covered.

O

Opus 17

Employee

If you are the seller and grant a seller's concession, that reduces the sales price for capital gains purposes. It also reduces the buyer's cost basis.

For example, if the listed sales price is $300,000 and you grant a $20,000 concession, the actual sales price is $280,000.

O

Opus 17

Employee

You can also subtract from the sales price, certain other costs of selling, like a real estate commission, stamp tax or deed transfer tax levied by the county, or surveys and inspections that you paid for.