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Discussion Forum Index --> Tax Questions --> Repair made to sold property - Paid by RE Agent
Chase (talk|edits) said:
| 17 June 2007
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| How would one account (on the tax return) for repairs paid for by the listing agent on properties that he ultimately sold?
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Www.cpa1.biz (talk|edits) said:
| 17 June 2007
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| I would think this would be a gift from the person so no taxes needed to be paid. Since it was repairs, it would not be added to the basis.
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Sandysea (talk|edits) said:
| 17 June 2007
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| Is there any mention of it in the closing documents? This could be part of the closing costs in the R/E fees, but sometimes a R/E agent will do minor repairs to make the home more appealing without passing the cost on to the seller....
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Chase (talk|edits) said:
| 17 June 2007
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| Thank you for your reponse. In this case, the "repairs" totaled close to $13K .....the agent made the repairs to more than one house that he sold. I will ask them if there was anything on the closing docs of those sold homes. If not, could it be part of his ordinary and necesary expenses as a real estate agent?
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KatieJ (talk|edits) said:
| 18 June 2007
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| Chase, I presume you're talking about the real estate agent's tax return. This certainly isn't a gift; he didn't make those repairs out of the goodness of his heart. He did it to get the deal to close. I think it's a business expense to the agent, unless he was reimbursed at the closing.
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Michaelstar (talk|edits) said:
| 18 June 2007
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| Chase - these expenses are sec 162 expenses and fully deductible by the real estate agent. These are costs that the r/e agent made in order to make sure the sale closed. Had the repairs not been made, the sale probably would not have closed as the buyer most likely would have walked away. The r/e agent would certainly need to maintain invoices for these repairs with dates during the listing period of the properties - other than that - I see no problems with the above the line deduction. I fully agree with KatieJ.
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Dennis (talk|edits) said:
| 18 June 2007
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| Seems to me these expense are closer to unique than ordinary and necessary. What is the nature of payments for repairs to the prospective seller if the house is not sold? From the standpoint of the State Licensing agency, what is the difference between payment for repairs and a kickback?
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WesR (talk|edits) said:
| 18 June 2007
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| Hi the agent wanted to sell the properties so he paid for the expenses. Nothing different than taking a smaller commission. bye
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Gosix (talk|edits) said:
| 18 June 2007
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| Quite possible that these repair expenses were "deducted" off the commssion. I'd look to see if the commission recorded as income were already Net of these expenses. Get the closing statements. They will tell the story.
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Chase (talk|edits) said:
| 18 June 2007
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| I am in contact with the taxpayer to get a copy of the closing statements to see how these were treated. Thanks to you all for your help!
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Dennis (talk|edits) said:
| 18 June 2007
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| The problem is one of consistency. All well and good to net the repair cost against the commission on sale...but what if the house is not sold? Further, what if after listing period expires, seller takes the property off the market? Seller clearly has an accession to wealth, but does he have income or reduction in basis? Does agent have a current deduction in the year of expense or a capitalized accrual against specific commission? Is there a point at which the cost of the repair matters? Does it matter if repair is done by husband's S Corp? ♫ I think some attention should be paid to the nature of the transaction. Agent appears to be purchasing a presumably exclusive listing with a promise to repair presumably certain items.
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Michaelstar (talk|edits) said:
| 18 June 2007
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| Dennis - I agree that all of your points a valid and need to be considered in this type of agreement between the seller and agent. If the agent just agreed to be paying for repairs before a valid offer was written up just to assist the property to "show" better is one thing. If the agent was to assist the seller repair a few items that were the result of a home inspection to help close the deal then I might consider that assistance close to necessary to close the deal.
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Dennis (talk|edits) said:
| 18 June 2007
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| Has agent made payments for the benefit of an individual in the normal course of his trade or business? Is in effect a 1099 required if amounts total more than $600?
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Larry0434 (talk|edits) said:
| 18 July 2007
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| No Dennis. The 1099 would be issued to the contractor making the repairs. It is a common and ordinary practice to make minor repairs, remove unwanted items and other small things to push a sale thru. The real estate agent deducts the cost as a ordinary and necessary business expense.
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