What to do if we are selling a house and the buyer asked us to separate the sale price into 2 categories – the price of house and its contents?

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What to do if we are selling a house and the buyer asked us to separate the sale price into 2 categories – the price of house and its contents?

The house price, $225,000, was to be separated into $175,000 for house and $52,500 for contents. The contents are worth approximately $3,000. The lawyer for the buyer told us not to claim the difference between $52,500 and $3,000 as income. Is this legal?

Asked on November 12, 2017 under Real Estate Law, Pennsylvania

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

1) Any time you misreport or mistate a gain or income is by definition illegal: you have to report gains accurately and truthfully. If you sell items worth $3,000 for a $52,500, that *is* a taxable gain. Do not hide income from the IRS.
2) Depending on the exact facts, home sales are generally taxed in a more advantageous way for sellers than are sales of non-real estate property: it is reasonably likely that you have set yourself up for worse tax treatment by acceding to the buyer's wishes.
Speak with an accountant or CPA about how you want to best (while legally and truthfully) treat this situation.


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