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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29654
Experience:  Taxes, Immigration, Labor Relations
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How do I handle this? A purchase of land appraised at $1.2

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How do I handle this? A purchase of land appraised at $1.2 mil. On this land was a crop of wheat valued at $160k and two 4 acre parcels valued at $75k. At the signing (for the purchase of this property) the seller changed his mind and said he would only go thru with the sale IF I would GIVE him the wheat crop AND the two 4 acre parcels AFTER his selling it to me, because if it was done before, the appraisal would have been less and the loan would not have been approved. So, I'm out about $235k since it occurred after the purchase.

Lev :

Hi Steve and welcome to our site!
I would report such transaction as a sale at the fair market value - because it was the disposition of the property you legally own after the purchase contract was completed..
Assuming - your purchase price is equal to the appraised value of $1.2 mil. - that is your basis. you need to allocate the basis between each item - and assuming that the basis of assets you are returning to the seller is $235k - you will record the sale as $235k (selling price) MINUS $235k (basis) - and your gain/loss will be zero - so there would not be any tax liability.


I received no money so how can I not have a loss?

Lev :

You may not claim a loss if you just giving away a property... I thought that the part of the purchase price were refunded and that would be logical...
In this case you original purchase should be re-evaluated - and that transaction should be treated as a addendum to the purchase contract. That means - you purchased for $1.2 mil. only the property which were not returned. and the basis should not be assigned to returned assets.
If you received no money - nothing is reported on your tax return.

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