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socrateaser, Lawyer
Category: Tax
Satisfied Customers: 37830
Experience:  Retired (mostly)
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This is a TAX QUESTION. In the case of a purchase-money

Resolved Question:


In the case of a purchase-money mortgage (where the seller of real property
agrees to accept periodic payment of the purchase price from the purchaser),
if the seller later reduces the amount that is owed, why doesn’t the purchaser
recognize forgiveness-of-debt income? What is the logic of that situation?

Please provide support.
Submitted: 3 years ago.
Category: Tax
Expert:  socrateaser replied 3 years ago.


In Helvering v. AL Killian Co., 128 F. 2d 433 (US 8th Cir. 5/15/1942), the Eight Circuit Court of Appeals writes that "a reduction in the purchase price of property brought about by shrinkage in the value of the property and the consequent decrease in the assets of the taxpayer" is not taxable income. This is the rationale used by the courts in determining that no taxable income results from a seller financed transaction where the seller forgives a portion of the financing -- it is simply a reduction in the price of the property financed.

See also, Hirsch v. Commissioner, 115 F.2d 656 (7th Cir. 1940); Charles L. Nutter, 7 T.C. 480 (1946); Gehring Publishing Co., 1 T.C. 345 (1942).

Hope this helps.

Customer: replied 3 years ago.
Thank you.
Expert:  socrateaser replied 3 years ago.
You're welcome. Please let me know if I can be of further assistance.
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