@khanian wrote:
You seem very familiar with this form, so I hope I can ask a follow up question. I understand now about the worksheet. Can I also ask about line 1 from page "Sale price (from Worksheet for Part 2, line 15)"? Given that the form says to use the number from line 15, this suggests that it should include a deduction for eligible selling expenses. So it is not simply the amount the buyer paid, but should reflect the selling expenses deduction as per the worksheet. Is that correct? It contradicts what I normally associate with "sale price" (purchase price) but seems to be what the form is asking for.
The question is, where to account for selling expenses. The instructions for form 2664 say to make two separate calculations: adjusted cost basis, and adjusted selling price. They say the selling price on line 1 and on the worksheet line 15 should be the net sales price after adjustment for allowable expenses.
If the IRS gets a sales report (1099-S) they will get the gross sales price without adjustments. So if you report an adjusted sales price of $550,000 but the IRS gets a report of a gross sales price of $600,000, the IRS may start asking questions. You can easily explain what happened, but there is a way to report the sale to avoid the questions in the first place. You can report the selling expenses along with your purchase closing costs to increase the cost basis, and report the gross sales price as the selling price. Your taxable gain will come out exactly the same, but it won't raise a red flag with the IRS. For example:
Purchase price $200,000
Purchase closing costs $10,000
Improvements $10,000
Adjusted cost basis $220,000.
Gross selling price $600,000
Selling expenses $40,000
Adjusted selling price $560,000
Capital gains $340,000.
Here are two ways you could report that on your tax return
| Purchase price (line 5) |
$200,000 |
$200,000 |
| Improvements (line 6) |
$10,000 |
$10,000 |
| Closing costs (line 7) |
$10,000 (purchase only) |
$50,000 (purchase and selling) |
| Adjusted cost basis (line 14) |
$220,000 |
$260,000 |
| Gross sales price |
$600,000 |
$600,000 |
| Sales expenses |
$40,000 |
--- (already accounted for) |
| Adjusted selling price (line 15) |
$560,000 |
$600,000 |
| Capital gain (line 15 minus line 14) |
$340,000 |
$340,000 |
The IRS won't care, as long as the bottom line is correct, and I don't think NY will care either. However, reporting the gross sales price, and adding the sales adjustments to the purchase adjustments, may avoid an IRS letter.
