1. This is not a question, but a factual statement for the sole purpose of prividing pertinent details so the numbered questions following it can be answered. This "response" you're reading "right now" is just a place holder.
2. Yes
3. Assuming you are the seller and not the buyer, any monies you basically "refunded" to the buyer reduce your cost basis. You don't have to split that proportionally either. If the rehab was to pay for repairs or anything else to the structure, that reduces the structure sales price, which of course will reduce your overall total sales price. The value and sales price of the land does not change. But hey, if you want to allocate you most certainly can. It will still reduce your taxable gain if you do or don't allocate.
The only thing the IRS gets is pertinent information from the HUD from the closing agent, and the 1099-S you got from the bank. They IRS does not expect numbers to match up exactly, as they never do and never will. But so long as your numbers are within a realistic range, no flags get raised.
Here's some additional information to help you.
- Cost that you incur associated with disposition of the property as the seller, are added to your cost basis of that property.
- Cost associated with your disposition/payoff of an existing mortgage you had on the property, are a flat out straight up deduction from any gain you receive.
So it extremely rare (to the point I've never even heard of it happening) for your taxable gain to be anywhere that close to the amount reported to you on the 1099-S. It most definitely won't be spot on.
