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If you are the seller and grant a seller's concession, that reduces the sales price for capital gains purposes. It also reduces the buyer's cost basis.
For example, if the listed sales price is $300,000 and you grant a $20,000 concession, the actual sales price is $280,000.
If the concession was for appliances for the home will that be an improvement the same as the foundation regarding taxes?
Any concession is added to the cost of sale ... it is just that simple. You MUST report the total sale price listed on the 1099-S or you WILL get an IRS letter in a year or 2.
Many lenders now do not require 20% and a semi-decent borrower can get it down to 3-5%. I recently closed on a house with Garden State Mortgage and I got 5% down and the lender covered much of the closing costs. Of course, if you are under 20% you will get hit with PMI costs every month until you achieve 20% equity.
Now I am trying to sell my old house and everyone is asking for seller concessions. Two friends I know also received money from the seller to cover their closing costs. However, the seller concession will appear on any closing docs and a large seller concession which goes beyond the closing costs will raise red flags with the lender.
As you do point out, this can create problems with the appraisal since no bank will offer more of a loan than the house is worth and that is where this approach can fall apart.
Generally, you are incorrect! A borrower under the correct circumstance can put down as little as 3%. The problem with the conversation chain is that the Seller meant to say the buyer wanted to make the purchase price $300K and get a $50K concession toward credit costs. THAT could never happen because the closing costs on that low of a price could never reach $50K. They were probably asking for a seller second mortgage or to get money back post closing both of which are not allowed.
This is a terribly worded and wholly inappropriate answer. A sellers concession helps the buyer to manage closing costs. There is usually not a repair involved so youāve moved this entire issue to another category and done so with arrogance. Saying āreporting it correctly to the IRSā helps no one. I had the same question as OP. The concession - for your future reference - gets tacked onto the sale price of the house and then goes to the buyer for closing. Iāve read the responses for 5 minutes and cannot go on as the general hostility while misunderstanding the question is really shameful. Please donāt respond. This was more than enough -
Completely agree.
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