Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 09-01-2015, 05:51 PM
Junior Member
 
Join Date: Sep 2015
Posts: 2
tax status of after-closing settlement?

Is an out-of-court settlement paid by seller to buyer after closing taxable as ordinary income or does it simply adjust the cost basis of the home?
We purchased a home and immediately found undisclosed structural problems effecting the material value of the home that led to considerable unanticipated expenses. After a couple of months of negotiation, we came to an agreement to settle and the Seller and Seller's agent paid us about half of the associated costs. Is this settlement considered an adjustment to the cost of the home (as it would have been if discovered and credited during escrow) or is it taxable ordinary income? Thanks for your insights.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 09-01-2015, 11:16 PM
Moderator
 
Join Date: Oct 2010
Posts: 5,233
Quote:
Originally Posted by Rick_LB View Post
Is an out-of-court settlement paid by seller to buyer after closing taxable as ordinary income or does it simply adjust the cost basis of the home?
We purchased a home and immediately found undisclosed structural problems effecting the material value of the home that led to considerable unanticipated expenses. After a couple of months of negotiation, we came to an agreement to settle and the Seller and Seller's agent paid us about half of the associated costs. Is this settlement considered an adjustment to the cost of the home (as it would have been if discovered and credited during escrow) or is it taxable ordinary income? Thanks for your insights.
Is an out-of-court settlement paid by seller to buyer after closing taxable as ordinary income or does it simply adjust the cost basis of the home?=========>>It simply increases the cost basis of the home and is NOT taxable.
We purchased a home and immediately found undisclosed structural problems effecting the material value of the home that led to considerable unanticipated expenses. After a couple of months of negotiation, we came to an agreement to settle and the Seller and Seller's agent paid us about half of the associated costs. Is this settlement considered an adjustment to the cost of the home (as it would have been if discovered and credited during escrow) or is it taxable ordinary income? ========>> In general, It doesn't matter if the money is from an out of court settlement or a civil judgment. What matters is if it is being paid for physical injury.The money for home damage that the buyer received after home closing costs are not taxable, but can be added to the basis of the home and reduce profit on the sale or other disposition of the residence when the buyer sells the home in the future.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #3 (permalink)  
Old 09-01-2015, 11:52 PM
Junior Member
 
Join Date: Sep 2015
Posts: 2
tax basis

Thank you, Wnhough,
That would be great.
Wouldn't the payment from Seller to Buyer then act to REDUCE the cost basis (effectively reducing the sale price) for purchase, and make any future gains LARGER? Thanks.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Filing Status Residency Status Mattdmrs Indiana 1 02-17-2015 11:04 PM
Date of Closing for deducting closing costs sllauber Itemized Deductions 3 12-27-2012 03:17 PM
Dual Status Foreing Student/Intern on J1 visa - Status lenght calculations questions EdMarchand Income 0 02-15-2012 08:09 PM
closing ira to pay for lasik tinner1975 IRA/Sep 0 10-21-2010 02:29 AM
Closing an LLC dfish4 Limited Liability Company 0 02-05-2010 01:48 PM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning