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Merlo
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Category: Tax
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We opened escrow to purchase an apartment building 1 1/2 years

Resolved Question:

We opened escrow to purchase an apartment building 1 1/2 years ago. The seller breached the contract and we've been in litigation since. The seller and I are about to settle the dispute and we are ready to close escrow.
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.

Hello Levin,

 

What is your tax question regarding this transaction?

Customer: replied 5 years ago.
I never completed the question so here it is again: We opened escrow for the purchase of an apartment building in February 2007. The Seller breached the contract and we've been in litigation since. We are about to settle the dispute and close escrow. Is it correct that the trade date is the day after the date we opened escrow for the purchase of the property? If that is so, and we close escrow next week, have we met the 12 month hold period so we will only have to pay the 15% capital gains tax?
Expert:  Merlo replied 5 years ago.

Hello Levin,

 

Are you planning on selling this property right after purchasing it?

Customer: replied 5 years ago.
yes
Expert:  Merlo replied 5 years ago.

Hello again Levin,

 

Unfortunately your holding period of a property starts with the day you acquired the property, and not the date that escrow was opened.

 

To determine how long you held the investment property, begin counting on the date after the day you acquired the property. The day you disposed of the property is part of your holding period. That being the case, you would not yet qualify to treat this sale as a long term capital gain.

 

I am giving you a link below to IRS Publication 17 which defines the holding period for property.

 

If this was helpful please press the Accept button. Positive feedback is also appreciated.

 

Thank you.

 

http://www.irs.gov/publications/p17/ch14.html#publink100033340

 

 

 

Customer: replied 5 years ago.

Before I accept your answer, please tell me why the following doesn't apply:

 

It is absolutely vital that you realize the buy and sell date the government uses to determine the length of time you held the asset is the trade date (the day you ordered your broker to buy or sell the investment), not the settlement date (the day when the certificates changed hands).

Expert:  Merlo replied 5 years ago.

Hello again Levin,

 

The statement you have quoted above applies to trades of stocks and bonds, but not to real property.

 

The reason for that is that the trade date of a stock or bond is actually a firm committment to buy that stock. Once you have executed a trade, you are legally locked in to making that purchase or sale. Also, the settlement date generally follows within one or two days following the trade date, and does not cover a 12 month period of time.

 

The start of the holding period for real property is clearly defined by the IRS as the day after you acquire the property.

 

I wish I could give you the answer you are looking for, but these are the IRS rules.

 

 

 

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and 4 other Tax Specialists are ready to help you
Customer: replied 5 years ago.
I don't like those rules. It's gonna cost $2.4 million.but I'll accept. Thank you.

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