Can seller rent back payment be treated as reduction of the house purchase price?

Forum|Forum|6 years ago
June 4, 2019
2 replies
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I purchased a house for my primary residence, which is closed in April, 2017. In the purchase contract, there is a seller rent back agreement to allow the seller rent it back for a month. And we did not move in to the house until a month later in May, 2017. The seller paid me some money as the rent for that month. From other posts (Like this: https://ttlc.intuit.com/questions/3383082?_ans=1&_pos=3&_src=sapi&_tot=259951&from=sapi&tags😃 it seems I have 2 options for the payment: 1. Treat it as reduction of the purchase price. 2. Report it as not for profit rental income. I prefer #1 so I don't have to pay tax on the payment, however I can find any IRS reference which states this is an option. Can anyone share the IRS reference which confirms #1 is an option?

kprice3

Well good news. The correct way to treat the rent payment in my view is a reduction in purchase price or basis. This is one of those areas where there is nothing in black and white.

Per Pub 527, payments received for several /various things decrease basis. An amount you receive for granting an easement reduces the basis or cost of the property Granting the seller a rent back is similar to an easement and could be handled the same. Since this was in the sales contract and the buyer received money back at closing, I believe it is a reduction in sales price or basis.

zhongjp058Author

Employee

@TurboTaxKerriP Thank you very much for your answers! It helps a lot!

ccr12189

We provided the elderly owner free rent back for 2 months as an incentive to sell in February but not have to move out until she found an apartment. How is that situation handled?