Discussion:TAXATION OF REAL ESTATE DEPOSIT

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Discussion Forum Index --> Tax Questions --> TAXATION OF REAL ESTATE DEPOSIT


CAROLM (talk|edits) said:

25 January 2007
Our client has an offer to sell a piece of property for $1,350,000. The buyer would like to give him $150,000 as a downpayment and complete the sale in 18 months. The $150,000 will be applied towards the purchase price. No interest will be paid during the 18 month period. Our client would like to handle this as a capital gain transaction. Is this possible?

If the $150,000 is non-refundable, does he have to pick it up as ordinary income?

If he holds the $150,000 in escrow and doesn't touch it until the sale goes through in 18 months, does he have to pick it up as income this year?

If he receives the $150,000 and sets up an option to purchase agreement, can he defer the taxation of the $150,000 until the sale is completed? If not, is it capital gain or ordinary income?

JR1 (talk|edits) said:

January 25, 2007
It's deferred anyway. You've got nothing to report until the 18 months runs, at which point the sale is reported, or cancelled, and the money either kept as part of the sale or refunded, or retained as a forfeiture charge. Nothing for now.

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