Taxes for buying furniture for the second home (personal residence)

[Stasy]

Hello!

I have quite a complicated situation. I am selling an apartment that I own 50%/50% with my ex-boyfriend (not married)  and purchasing a separate apartment the price of which is smaller than my part in sold property. However, this new apartment has furniture and the buyer wants to make a separate agreement for this furniture and appliances. The price of this separate agreement is quite high  (about 30% of the apartment cost). therefore, I was wondering if I can receive any tax deduction for this furniture or consider it a part of the cost of this new apartment (since it is already there and being sold by the same person). 

Also, would I be able to count this cost to cover the earnings from the sold apartment? (the sold apartment was the primary residence but for less than 2 years within the last 5 years and I do not really have any evidence of this).

Thank you very much! 

[Hal_Al]

Q. Can I receive any tax deduction for this furniture or consider it a part of the cost of this new apartment?

A. There is no deduction for that.  Also you cannot add the cost of the furniture to your cost basis.

Q. Would I be able to count this cost to cover the earnings from the sold apartment? 

A.  No.

The old tax law (more than 20 years ago) allowed you to avoid tax on the sale of your home, if you invested the money in a new home.  That is no longer the case.  It does not matter what you do with the money, the gain on the sale is taxable, unless you qualify for the home sale exclusion.

As you apparently know, to qualify for the home sale exclusion, you must have lived in the old home 2 out of the last 5 years.

However there is an exception to the 2 year rule for "unforeseen circumstances". You may qualify, for  a reduced maximum (less than $250K) exclusion. See:

http://www.journalofaccountancy.com/Issues/2009/Nov/20091783.htm

[Stasy]

Thank you so much for your answer! 

Do I understand correctly that I cannot also defer paying the taxes through a 1031 exchange because the property is not rental? 

[Opus 17]

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@Stasy wrote:

Thank you so much for your answer! 

Do I understand correctly that I cannot also defer paying the taxes through a 1031 exchange because the property is not rental? 

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That is also correct.

Normally, property is sold for the full price, and the contents are transferred for a nominal consideration  like $1. I have never encountered a case where the seller wants to sell the contents for such a large percentage of the total.  I suspect they are trying to cheat on their own taxes.

You need an attorney to review this deal.  It may be that if the seller is doing one shady thing, they may be doing other shady things and you may be better off avoiding this seller rather than taking unknown risks.  It may also be that under state or federal law, the entire price will be considered the cost basis of the apartment when you eventually sell, in spite of the seller's games.  That is something you could review with a professional tax advisor.

However, any capital gains you have from selling the first home (or half the first home) are taxable to you and can't be deferred or rolled into the new home.  But you can use the personal exclusion of $250,000 if you lived in the home as your main home for at least 2 of the past 5 years and owned the home at least 2 years.  The first $250,000 of your gain (specifically, your half of the gain) is excluded from your income and you pay capital gains tax on the rest.  If your gain is less than $250,000, it is not taxable. 

See here for more.

https://www.irs.gov/forms-pubs/about-publication-523

[Mike9241]

@Stasy  i can understand what the seller is trying to do in charging separately for furniture and certain appliances like a coffee maker, and a free-standing microwave.  however, built-in appliances like a stove, dishwasher and the like are usually regarded as part of the real estate.  

[Stasy]

Thank you for your answer! 

[Stasy]

thank you!