- quote -

It's known as "Enron Accounting." After they trade the 8
acres to a related entity, lease back the 16 acre, etc.
they'll be unfortunate if they owe as much as $16,581 in
tax.

--
Tom Healy, CPA
Boulder, CO
Web: http://www.tomhealycpa.com

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pgattocpa[at]excite.com wrote:

- quote -

I figured it was capital gain tax on $100,000.

- quote -

Assuming they get the $500,000 exclusion, which they may
well not.

- quote -

That's not unusual for attorneys. My advice to people is
that if your attorney and accountant disagree, listen to the
accountant. Well, unless I'm the lawyer, of course. In that
case the accountant must be anal retentive, overly cautious
and doesn't have a creative bone in his body.

Not like anyone here, of course.

Stu

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Dick:

A little more / clarifying info please:

1) They purchased 5 acres, but are selling 6? How much did
the 6th acre cost? {it was a typo}

2) 92,419 + 16,581 = 109,000. Where is this number coming
from? {must be another typo)

3) Is the original 5,000 part of the 92,419?

4) Are they really merely selling 4 3/4 (or 5 3/4) acres of
land since they are keeping 1/4 acre and the house?

Notwithstanding the need for further info, it seems to me
that if they are keeping the house, all they are selling is
the land. If that is the case, I'd like to see the
attorney's support for not paying tax on the full amount of
the gain. And it would seem to me that the basis of the
land is only 5,000 (+ any land improvements that may have
been made and that would be part of the sale). Actually,
the basis would be 5,000 multiplied by the fraction
represented by the land sold versus the total land owned.

Regards,

Peter C. Gatto, CPA

{Clarification - It is 5 acres for $600,000 from a developer
with their costs at $92,419. So the capital gain is $7,581.
I have already told them their attorney lives in a fantasy
world and they should consider a lease/buyback agreement or
flat out move.}

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"Dick Adams" <rdadams[at]smart.net> wrote:

- quote -

Shooting from the hip, I don't see how they could call this
a sale of their residence, if the residence is being kept?

Mike Lewis, CPA

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Dick Adams <rdadams[at]smart.net> wrote:

- quote -

Where did the sixth acre come from? {typo}

- quote -

How much are they offering for the 5.75 (or 4.75) acres
without the house?

- quote -

Where did that number come from? I see a profit of
$507,581; presumably (you say "they") $500,000 of that is
excludable.

- quote -

I suspect the value of the house on 1/4 acre is considerably
higher than that (but it's all up to the buyer). At
$100,000/acre (or should it be $120,000?), the cost would be
$117,419, assuming that building costs haven't increased
since 1967 (if only).

- quote -

Sale/buyback and sale/leaseback arrangements are certainly
legal, and not uncommon in some areas. If they're worried
primarily about an audit, a sale/lease with option to
buy/later purchase might make that less likely. But I don't
see why selling one home and buying another is that likely
to trigger an audit.

Seth

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Dick Adams wrote:

- quote -

More information is needed to answer this one.

By "keeping the house", do you mean moving the house
elsewhere? (In some areas of the country, North Carolina
included, that means hooking it up to a truck and towing it
away)

And what means the 16,581$?

Nothing like this would set them up for an audit.

ChEAr$,
Harlan Lunsford

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Dick Adams <rdadams[at]smart.net> wrote:

- quote -

Would a sale/leaseback be safer?

Steve

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Dick Adams wrote:

- quote -

Well, first off, your numbers don't make sense. They bought
5 acres but want to sell 6? How did they acquire the 6th
acre? Is this a beachfront property and a full acre of sand
has washed up?

Then, you say sell for $600,000 and pay taxes on $16,581?
How did you calculate this?

If they retain part of the land, the land cost must be
apportioned between the part retained and the part sold. If
they bought 6 acres for $6,000 and retain 1/4 of an acre,
that land would have a basis of $250. The basis in the house
would be the $92,419 it cost to build plus any costs of
moving to the retained plot.

It looks like they would have a very substantial gain: a
selling price of $600,000 less the $5,750 cost, leaving a
gain of $594,250. At 15%, the tax would be nearly $90,000,
without considering any other factors that might be
involved.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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"Dick Adams" <rdadams[at]smart.net> wrote:

- quote -

If they sell the land but not the house, there is no
principal residence exclusion.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

Moderator:
What he wants to do is to sell it all and either rent the house
or buy it back in a separate transaction.

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A friend of mine purchased a 5 acres of land in 1967 for
$6000 and built a house on it. The house cost about
$35,000. They built onto the house several times. So
I got a phone call from them today. Amazing they have
records. Total cost to them is $92,419. They have an
offer to buy all six acres for $600,000! I replied
"That's terrific". She said "But we want to keep the
house."

May they sell it for $600,000, pay taxes on the $16,581,
and but the house on 1/4 acre for the $92,419. Or would
that set them up for a slam dunk audit. They have an
attorney who says it is ok.

Dick

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