Discussion:Installment sale reporting of §1031 exchange
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| My question is, does the $50,000 mortgage payoff get treated as proceeds in the year of sale as the taxpayer benefits from the payoff of the mortgage under some application of the constructive receipt rules or other unforeseen rules? If so, then logically $25,000 ($50,000 x 50%) gain is recognized and then %75,000 ($150,000 x 50%) gain is recognized in the latter year when the $150,000 of escrow funds are released. Otherwise, I suppose I'd have to inflate the $150,000 actually received in order for the entire $100,000 gain to be properly reported in the latter year. | My question is, does the $50,000 mortgage payoff get treated as proceeds in the year of sale as the taxpayer benefits from the payoff of the mortgage under some application of the constructive receipt rules or other unforeseen rules? If so, then logically $25,000 ($50,000 x 50%) gain is recognized and then %75,000 ($150,000 x 50%) gain is recognized in the latter year when the $150,000 of escrow funds are released. Otherwise, I suppose I'd have to inflate the $150,000 actually received in order for the entire $100,000 gain to be properly reported in the latter year. | ||
| - | I've done much research and asking around on this topic and get anything remotely reassuring as to either treatment. Any and all examples I come across fail to include the impact of mortgages. Hello? | + | I've done much research and asking around on this topic and haven't got anything remotely reassuring as to either treatment. Any and all examples I come across fail to include the impact of mortgages. Hello? |
| - | Any quidance or assurance would be appreciated. Thanks! Lance}} | + | Any guidance or assurance would be appreciated. Thanks! Lance}} |
| {{ForumReplyPost|UserID=KathiJud|Date=3 November 2009|Text=The entire sale is taxable in the year the sale closed. The fact the funds were held by the QI is not relevant. No installment reporting.}} | {{ForumReplyPost|UserID=KathiJud|Date=3 November 2009|Text=The entire sale is taxable in the year the sale closed. The fact the funds were held by the QI is not relevant. No installment reporting.}} | ||
Revision as of 15:18, 3 November 2009
Discussion Forum Index --> Advanced Tax Questions --> Installment sale reporting of §1031 exchange
Discussion Forum Index --> Tax Questions --> Installment sale reporting of §1031 exchange
| 3 November 2009 | |
| Assume that the relinquished property is sold late in the year for $200,000 and has a basis of $100,000 and a mortgage of $50,000. Taxpayer has the bona fide intent to complete the exchange but it fails and the QI returns the $150,000 the next year, having paid off the $50,000 mortgage in the prior year. Clearly, the realized gain is $100,000 and the gross profit percentage is 50%.
My question is, does the $50,000 mortgage payoff get treated as proceeds in the year of sale as the taxpayer benefits from the payoff of the mortgage under some application of the constructive receipt rules or other unforeseen rules? If so, then logically $25,000 ($50,000 x 50%) gain is recognized and then %75,000 ($150,000 x 50%) gain is recognized in the latter year when the $150,000 of escrow funds are released. Otherwise, I suppose I'd have to inflate the $150,000 actually received in order for the entire $100,000 gain to be properly reported in the latter year. I've done much research and asking around on this topic and haven't got anything remotely reassuring as to either treatment. Any and all examples I come across fail to include the impact of mortgages. Hello? Any guidance or assurance would be appreciated. Thanks! Lance | |
| 3 November 2009 | |
| The entire sale is taxable in the year the sale closed. The fact the funds were held by the QI is not relevant. No installment reporting. | |
| 3 November 2009 | |
| Installment reporting might be allowed. See if you can fit your facts into Example 3 at Treas. Reg. §1.1031(k)-1(j)(2)(vi). The example describes a taxpayer who enters into a deferred like-kind exchange with a qualified intermediary but who does not acquire any replacement property. The example states that the taxpayer may report the gain under the installment method. | |
| 3 November 2009 | |
| Agree with Dave, if the QI agreement contains the standard safe-harbor language which restricts the taxpayer's access to the cash, it is likely that installment reporting is available. | |
