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Hello and thank you for using Just Answer,Your question was very interesting. Should the taxes on the sale just be based on the cash rec’d ($191,350), or should the participation rights be ascribed some value?I see no value you could assign to the possible future actions. It appears your grandmother had a sale of rental and if in the future there are payments to her then those would be more in the nature of a royalty and not capital.
You are cash basis taxpayers under the Internal Revenue Code. The sale should be reported as a sale at the time of the sale, with the proceeds being the cash received, the sales price. Any uncertain future amounts are not consequential. Any amounts received in the future would be reported as taxable if and when received.
Thanks -- yes, I know I've got to also deal with the recapture, but didn't want to complicate the question. Thanks for the prompt response!