Rental Property sale as LLC Business - HUD or ALTA statement entries

[gmohan123]

1.  My 1099-S total sale is entered as a% of allocation to Bldg and Land sale proceeds so total price matches.
2.  Do I take all my expenses from HUD/ALTA statement which is debt to Seller divide by same ratio for land/bldg and enter in Select Disposed Asset - Disposal of Asset at same % allocation for Bldg and Land? So all my closing costs (no mortgage pay or interest)
3. Also I had rehab cost to the bldg that I paid after sale that I add and enter at the same Disposal of Asset for Bldg only (So it will have Rehab cost + HUD expenses).
4. Will IRS know it does not match HUD expenses (should add some statement)? Does IRS gets a HUD or only 1009-S sales proceed amount.

[Carl]

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.

[Carl]

Oh yeah, one more thing. If you actually got a HUD-1 closing statement at the closing, make sure you only use the numbers from the "sellers costs" column. The other column is for the buyer - not you.

[gmohan123]

1. Thanks for very quick and point by point reply. I still need one point to be clarified: when you say cost basis of that property I really do not change the cost basis since the purchase or asset was rented after the depreciation's started but I enter them as Sale Expenses? I am not able to figure out if these costs get added as a separate depreciation item?
2. Also to clarify I do not reduce the rehab cost prior to sale from the same price (even though you said it reduces sale amount) as then it will not match 1099 issued? To clarify the rehab cost was not paid on HUD but I paid them after the sale closed.
3. Please confirm that property taxes paid on HUD gets added  along with commission and other closing expenses and not entered as separate line item for the property.

[ColeenD3]

• Cost basis does not change. It is adjusted by improvements which in the rental section are added in their own screen. The rehab is a basis adjustment.
• Since you have allocated a percentage to the building and the land, use the same percentage for the sales expenses.

• Sales expenses include:

   - commissions

   - appraisal fees

   - broker's fees

   - legal fees

   - advertising fees

   - home inspection reports

   - title insurance

   - transfer taxes or fees

   - geological surveys

   - loan charges (points) or other fees paid on the buyer's behalf

  Sales expenses do not include:

   - mortgage payoffs

   - home equity loan payoffs

   - rent-back costs

   - payoff to creditors

   - property taxes

   - home owner association fees

[gmohan123]

Thanks for your reply.  

I am not sure where I enter this: The rehab is a basis adjustment

Also where will the property taxes I paid on closing statement will be entered if its not past of sales expenses?

[ColeenD3]

1000 Section: Reserves Deposited With Lender

• 1001. Initial Deposit for Your Escrow Account: This amount will be deductible as a current expense when the funds are disbursed from your escrow account by the lender.
• 1002. Homeowner’s Insurance
• 1003. Mortgage Insurance
• 1004. Property Taxes

1002-1004 are deposited with your lender and will be deductible as a current expense when the funds are disbursed from your escrow account by the lender.

HUD

[gmohan123]

Hi not sure how to use the above post.

If you can please guide me where to put in Rehab cost for basis adjustment I will be good ..

I put the property taxes in the rental section and not past of the HUD costs as you mentioned.

[RobertG]

The rehab costs can be either added to basis or claimed as a selling expense.