Can I get tax deduction on the repair amount $35,000 that I credit or give to Opendoor realestate company?

[Opus 17]

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@NCperson wrote:

one other way to think about this..... the $35k has to either be a permissable repair expense that you can deduct on your tax return OR a reduction of the capital gain. 

it can't be neither..... otherwise how is the $35k accounted for? it vaporizes into thin air with no benefit? that can't be. 

(agree it's a BS fee and inflates the purchase price for whatever reason)

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For me its a simple matter of who makes the repairs.

We all agree what happens if the taxpayer makes the repairs or improvements as a condition of sale.  But that didn't happen here.  The buyer bought the house as-is, inflated the price on paper, and then took the money back for themselves. 

It's not all that different than "seller pays closing cost" deals which is where this type of adjustment is more common.  The seller inflates the price and then pays the buyer's closing costs.  On the tax return, the seller reports the net price, not the on-paper price.   The only thing here that seems unusual to me is the size of the adjustment relative to the overall deal, not to mention the additional $14,000 in service fees.  

[tuanngnttax]

Thank you for all valuable replies. The buyer is Opendoor. Opendoor is a big public traded real estate company which buy and sell houses to make profit. It is like Offerpad real estate company and both are doing the same way that charge closing fee & service charge fee to sellers plus any repair cost and put all together into the form 1099.

[TomD8]

@NCperson wrote: 

"one other way to think about this..... the $35k has to either be a permissable repair expense that you can deduct on your tax return OR a reduction of the capital gain. 

it can't be neither..... otherwise how is the $35k accounted for? it vaporizes into thin air with no benefit? that can't be."

Exactly.  And per the IRS it's a reduction of the capital gain.  Otherwise the seller's capital gain would be based on the inflated sale proceeds of $251K.

No to be a cynic,  but I think Open Door's reason for inflating the sales proceeds is simple.  Would you rather be paid a sales commission based on $251K, or on $216K?

[Opus 17]

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@TomD8 wrote:

No to be a cynic,  but I think Open Door's reason for inflating the sales proceeds is simple.  Would you rather be paid a sales commission based on $251K, or on $216K?

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"Publicly traded".  We all know that publicly traded companies never inflate their asset values to prop up their stock prices.  Right?

And the selling price here was really $201K once you back out their other fake fees.

(Come to think of it, if they're a publicly traded company, and they are inflating the value of their real estate holdings going into a recession, a short play might be worth considering.  Anyone have a reddit account? 😉)

[NCperson]

@TomD8 - I'll suggest a different cynical view...

1) Opendoor comes in with a 'fantastic' offer price (subject to the repair inspection) which hooks you in. 

2) then way later in the process, when they "have you" and you really can't back out (i.e. purchasing another house that has to close, etc.) they come in with a big repair estimate.  What choice do you have than accept it?

I'll bet a fair amount of the repairs never occur.  

[TomD8]

@NCperson --

Bingo.  Also, my cynical response is correct only if OpenDoor acts as their own agent.  And I'm not sure that that's the case.  But @NCperson 's scenario is totally plausible.

[tuanngnttax]

This repair cost was already known as the time of final offer which was a few days after the first offer. But if you are not aware of what put into 1099s form, then you will know at the time of closing because the title company will show you that.  So in my case, Opendoor already let me know the repair cost after going through inspection at my house at the beginning stage and there was no futher repair cost after that.