Incorrect land cost

[ILLMAS]

TP bought land back in 2007 with another person (75% and 25% ownership), firms client retention policy is 10 years and tax files prior to 2011 were shredded.  Land was sold in 2022 and there is a discrepancy  between the cost of the land per settlement statement vs cost on tax program and accounting file.  Accounting file was reviewed and the TP land allocation is made up of $100K capital contribution and $500K mortgage loan they assumed totaling $600K vs $800K if you multiply 25% x the cost.  In case the $800K is correct, how can one make adjustment of $200k difference, the asset is land and it was never depreciated?

thanks

[BrewOne]

no 1065's ever filed? 

I guess I don't understand, what is the discrepancy? 75% of the basis = $600k and then report 75% of the proceeds (minus cost of sale)? 

Also, this is a good example that a client with investment property should be looking at capitalizing property taxes along the way--annual election, Section 1.266-1(c)(2)(i). Most software has it built in to the elections/statements worksheet.

[ILLMAS]

Each TP reports their share on a 1120S, the TP paper tax file was found, secretary thought I was asking for former clients files.  Anyway, TP did a 1031 therefore their basis is the 600K and not $3,200,000 x 25% = 800K.

FYI the land was being rented and it had expenses over the years.

[Abby Normal]

Was there a 1031 exchange for the land purchase? If not, just increase the basis in the tax software per the settlement sheet.

[ILLMAS]

TP sold a zero basis rental property (in exchange for the land) for 200K, the $200K reduce their 25% share $800K-200K = 600K adjusted basis into the new property (land).  At the time I wrote the original post, TP was taking on the position that their basis should of been 800K and not 600K, but now that we have the file there is nothing to worry about.  I didn't prepare the original return going back to 2007 but I was afraid there was a screw up and the wrong cost for land was entered.

[Lee B]

 

Where the heck do you keep finding these clients anyway?

 

[ILLMAS]

4 minutes ago, cbslee said:

 

Where the heck do you keep finding these clients anyway?

 

 Good client 

[Abby Normal]

48 minutes ago, cbslee said:

 

Where the heck do you keep finding these clients anyway?

 

Seems fairly typical to me, especially for clients that have long held assets.