Origin of the claim

Technical topics regarding tax preparation.
#1
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Taxpayer buys an investment property a few years ago, never puts it into service as a rental. Things go south and the taxpayer sues a contractor. While the suit is pending they sell the property for a short term capital gain.

Fast forward a few years, taxpayer receives a settlement. All for damages. This is a short-term capital gain correct?
 

#2
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Your origin of the claim heading is correct. Since it was a contractor, I'm thinking the proceeds should be considered a reduction in the cost, thus decreasing basis, resulting in STCG.
Steve
 

#3
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Thank you.
 

#4
Nilodop  
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That answer is probably correct. But is there a way to report the settlement as a LTCG? For instance, the buyer no doubt knew of the claim and signed off on not getting any part of the settlement. So at that point, did taxpayer hold a capital asset (the claim) which he relinquished to the contractor in exchange for the settlement proceeds, hopefully over a year later? Separat from the sale of the property.e
 

#5
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Nice try, but there was no sale of the damage claim. It simply got paid.
Steve
 


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