Sale of property with a credit to the buyer

[Estate636]

My father is selling a building that is not his primary residence.  I guess that means that it's an investment property, even though it has been operating at a loss.

The buyer wishes a substantial credit at closing.  He claims that it would be beneficial to my father, when declaring the sale.

How can this credit to the buyer work in my father’s favor?

[Mike9241]

credit for what? some would be treated as a selling expense which has the same effect as reducing the sales price. 

[Vanessa A]

It could possibly reduce the profit on the sale of the building which would decrease taxable income.

Is this a second home or vacation home? If he is selling the building for $100,000 and paid $120,000 5 years ago for it, there would not be a benefit to giving the buyer a credit as you cannot claim a loss on the sale of personal property or a vacation or second home. 

If this was business use property or other investment type property, he may be able to offset other investment gains and up to $3,000 in ordinary income to reduce his tax liability.  He can then carry forward unused losses to future years.

However, if he is not planning to have a tax liability in future years (ex. income will only be from social security) then he would not benefit from this.  You also need to look at the amount he could save on taxes vs the amount he loses by giving the buyer a credit. 

It would be wise to speak with a financial advisor or tax advisor in your local area as there are a lot of variables that would come into play as to whether or not he could benefit from giving the credit. 

[Estate636]

This is exactly my thought. 

[Estate636]

I would consider the building an investment type property, and I don't foresee him having any tax liability in future years.  His main concern would be capital gains from the sale.

[ThomasM125]

Since income tax is a merely a percentage of income, reducing income is going to result in a bigger loss than the gain associated with a tax savings. It is not likely that lowering the selling price would result in a financial gain even if there are tax savings involved. The tax savings would be less than the income lost by lowering the sale price.