Discussion:1038 repossession of residence
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Discussion Forum Index --> Advanced Tax Questions --> 1038 repossession of residence
Discussion Forum Index --> Tax Questions --> 1038 repossession of residence
| 11 February 2008 | |
| Seller sales his personal residence under contract, takes section 121 exclusion and has a zero gross profit percentage for reporting installment gain on the contract. Buyer defaults in the first year after making only the down payment of $5k.
Seller decides RE market sucks and signs a contract to rent the property out. The seller will not be selling his previous residence within a year of the initial sale. The rules from Treas Reg 1.1038-2 appear not to apply. Instead, I believe the seller recognizes gain on the $5k and the basis in the property becomes the basis in the note plus the $5k of gain. That is a nice deal for the TP, because he gets his 121 exclusion, keeps the property and has the equivalent of a step up in basis to FMV which increases his depreciation deduction for the (now) rental property and may even produce a capital loss on a future sale if the RE market continues to slide. Seems too good to be true. Am I missing anything? Thanks | |
| 11 February 2008 | |
| Anybody?
Somebody out there must have run into this situation before. I've done my research, but the interplay between sections 1038 and 121 results in an odd conclusion. I just want to make sure I'm not missing something. Thanks | |
