@ruralakay wrote:
Thank you for your quick and kind response. That was the answer I was looking for. It didn't seem appropriate to use the $104k net proceeds figure, because that would have us carrying over the loss for the next 12-14 years. I wish the title company and realtor had placed the mortgage payoff somewhere else on the document than lumping it into the closing costs. Thanks again.
You just need to look at the selling price. If the contracted selling price is $235,000, that's the selling price, regardless of any other adjustments or the amount of the mortgage. (Remember, that if you sell for $235,000 but the proceeds are only $100,000, that's because the previous owner borrowed a lot of money on the house that wasn't taxed at the time and never paid it back prior to the sale.)
Then you can subtract the commission and certain of your other closing costs (maybe, see the list in publication 523 https://www.irs.gov/forms-pubs/about-publication-523)
Be careful about the difference between improvements and repairs. You can increase the cost basis by the cost of improvements but not repairs. Again, see publication 523 for a discussion of this topic.
If audited, the tax assessment would be considered the least reliable determination of FMV, because assessments are rarely 100% accurate. I agree the lower range of the CMA is possibly ok. A third argument, even more conservative, would be that, unless the market changed a lot in 5 months, the FMV was probably the same as the eventual selling price. (The selling price is the ultimate proof of FMV, assuming the seller and buyer are unrelated, and the house was publicly listed. And if the FMV at the sale was $235K, it was probably the same or lower in December.) Even using the selling price as FMV would create a small tax loss once you include your improvements and the commission.
