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Is seller's concession taxable?

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syntheticzero

Junior Member
Hi, I'm buying a condo in New York (in New York State). The sellers have agreed to include a $10K seller's concession to help cover the closing costs. However --- we have some questions about this.

1) Their lawyer does not want to include mention of this in the contract, probably because he doesn't want to spend time dealing with it. He would rather this be done separately, with the $10K seller's concession simply promised via an email from the seller. (We know the seller personally and trust her, so we're not concerned about her reneging). Will the fact that this is not included in the contract cause us some legal or tax issues later?

2) If the contract indicates that the selling price is $X and doesn't mention the seller's concession, will this cause us tax problems because we're getting the $10K from the seller without any apparent reason, except for a personal promise via email? Will we have to report that $10K as income?

3) Even if it were mentioned in the contract, would we still have to report it as income? What are the tax consequences of receiving a seller's concession? Note: we make enough money to have to pay AMT, so we are subject to AMT rules.
 
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LdiJ

LdiJ

Senior Member
syntheticzero said:
Hi, I'm buying a condo in New York (in New York State). The sellers have agreed to include a $10K seller's concession to help cover the closing costs. However --- we have some questions about this.

1) Their lawyer does not want to include mention of this in the contract, probably because he doesn't want to spend time dealing with it. He would rather this be done separately, with the $10K seller's concession simply promised via an email from the seller. (We know the seller personally and trust her, so we're not concerned about her reneging). Will the fact that this is not included in the contract cause us some legal or tax issues later?

2) If the contract indicates that the selling price is $X and doesn't mention the seller's concession, will this cause us tax problems because we're getting the $10K from the seller without any apparent reason, except for a personal promise via email? Will we have to report that $10K as income?

3) Even if it were mentioned in the contract, would we still have to report it as income? What are the tax consequences of receiving a seller's concession? Note: we make enough money to have to pay AMT, so we are subject to AMT rules.
Click to expand...
I personally consider sellers concessions to be a reduction in the purchase price of the property, therefore a reduction in basis. A reduction in basis means that some day in the future, the 10k may end up being a capital gain upon which tax might have to be paid.

However, since this is being done outside of the contract, that makes it a little iffier.

I would be interested to see what other's opinions might be.
 
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abezon

Senior Member
1. Yes. An email is not a signed writing, & therefore it would not be an enforceable contract. The lawyer is lazy. Also, by keeping the price high, you're going to end up taking out a larger mortgage, which means more interest, higher closing costs, etc. You can avoid some of this by immediately sending the $10,000 to the bank, but some fees will simply be higher. Property taxes may also be affected, depending on how NY determines property value. It also means the seller pays more fees (commission).

2. You reduce your basis (purchase price) by the refund, whether it's reflected in the closing documents or not. The $10k is a refund, not income.

3. Putting it in the contract or not doesn't change the treatment.
 
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