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Collecting Money Owed on a Verbal Contract

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  • 09-27-2013, 07:45 PM
    Welfarelvr
    Re: Collecting Money Owed on a Verbal Contract
    Quote:

    Quoting llworking
    View Post
    Well, I would not report the sale of the appliances as that would be a casual sale of used merchandise. I would possibly consider the moving expenses to be a gift as there is a friendship between the buyer and the seller. I would have to ask a lot more questions to be certain. However, even if the moving expenses could or should have been considered to be part of the sale, unless the seller realized a capital gain of greater than 250k (highly unlikely in today's market and highly unlikely based on the information presented in this thread) its a relatively moot point. If I decided that the moving expenses were part of the sale, then I would simply include the moving expenses in the gross proceeds of the sale when reporting the home sale...which would result in no tax anyway.

    I am a tax professional so perhaps my perspective would be different than yours. I also used the same link and disagree that there is any more information there than is here. In fact, the last poster on that thread agreed more with my stance than yours.

    The posters were from here. The site is stealing from these posts on the answer.

    If the moving expenses were outside of the sale, then it would be ordinary income. A casual sale of used merchandise is still taxable in appropriate circumstances. Especially with the numbers we are talking about. Section 121 would only exclude income for the sale of a personal residence. If a separate agreement, then it would not be a personal residence. Choose your theory. All one? Separate sale? I think it the former. That makes it mortgage fraud. If it is the latter, then the tax treatment is different from how you say.
  • 09-27-2013, 08:04 PM
    jk
    Re: Collecting Money Owed on a Verbal Contract
    Quote:

    Welfarelvr;747092]Paying "moving expenses" and money to buy new appliances overstates the value of the house letting the buyer get a bigger loan than necessary and overstates the buyer's basis in the property.
    How is that? The moving expenses and appliance money was outside of the RE contract.


    Quote:

    If the appliances were not fixtures, then there could have been a separate deal made for them. That is not what happened.
    appliances,. unless the are built ins, are not fixtures. They are chattel.
    Quote:

    What was the consideration for paying the moving expenses? Nothing other than the sale of the house. It was all the same transaction and it all should have been on the mortgage forms.
    Why?

    Quote:

    Besides the written contract, there was also a verbal agreement to pay some cash on top of what the condo sold for on paper. This was to be used for moving expenses and new appliances since the condo was left with all the previous appliances ( washer, dryer, fridge, stove and microwave).
    Quote:

    The buyer is not coming up with more money from his pocket to pay this amount. He is taking it from the loan. It should have been disclosed.
    No he's not. It is coming out of his pocket.

    Quote:

    Besides the written contract, there was also a verbal agreement to pay some cash on top of what the condo sold for on paper. This was to be used for moving expenses and new appliances since the condo was left with all the previous appliances ( washer, dryer, fridge, stove and microwave).
    where do you get that money is rolled into the loan?
  • 09-28-2013, 04:29 AM
    llworking
    Re: Collecting Money Owed on a Verbal Contract
    Quote:

    Quoting Welfarelvr
    View Post
    The posters were from here. The site is stealing from these posts on the answer.

    If the moving expenses were outside of the sale, then it would be ordinary income. A casual sale of used merchandise is still taxable in appropriate circumstances. Especially with the numbers we are talking about. Section 121 would only exclude income for the sale of a personal residence. If a separate agreement, then it would not be a personal residence. Choose your theory. All one? Separate sale? I think it the former. That makes it mortgage fraud. If it is the latter, then the tax treatment is different from how you say.

    Describe a casual sale of used merchandise where the proceeds would be taxable please. The only way that would be possible is if the sales price was greater than the basis.

    Your theory about the moving expenses being ordinary income fails with your own argument that the moving expenses are being given with no consideration.

    I still cannot see how you can argue mortgage fraud. The property was sold for less than FMV according to the OP. Therefore the mortgage company has not in any way been defrauded into lending more than the property was worth.
  • 09-30-2013, 11:45 AM
    Welfarelvr
    Re: Collecting Money Owed on a Verbal Contract
    Quote:

    Quoting llworking
    View Post
    Describe a casual sale of used merchandise where the proceeds would be taxable please. The only way that would be possible is if the sales price was greater than the basis.

    Your theory about the moving expenses being ordinary income fails with your own argument that the moving expenses are being given with no consideration.

    I still cannot see how you can argue mortgage fraud. The property was sold for less than FMV according to the OP. Therefore the mortgage company has not in any way been defrauded into lending more than the property was worth.

    If I give a loan for a property under false pretenses that is going to be classified as mortgage fraud. Do you know how much less than FMV the house was sold for? Many might say FMV is defined by what a willing buyer is willing to pay and a willing seller is willing to sell for rather than an estimate from an appraiser or realtor. If my theory is incorrect, then what is it? A gift? I do not think it ordinary income as I believe they are a part of the sale of the property and should have been disclosed on the mortgage documents. If it is not mortgage fraud it is ordinary income. If it is just an extra large payment for the appliances, then it could be the description of a casual sale of used merchandise where the proceeds would be taxable you seek. I am glad we agree gains over basis would be an appropriate circumstance where it would be taxable. The problem here is the writer made a point to state the money was not for the appliances. It was for the appliance and the moving expenses.

    That is called an undisclosed kickback. It would be interesting to see how the realtor "fees" the writer mentions were dealt with in the documents.
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