How to Record Building Purchase with Option

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#1
BFStax  
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My client gave me their financials for tax prep and explained that they purchased a building during the year. They recorded the purchase at $377,000 but the closing document has a purchase price of $400,000. I reviewed the lease to find they had an option to buy the building at $400k with 50% of their rent paid credited towards the purchase price. How do I reconcile on their books the credit towards the purchase price so the fixed asset listing is correct at $400k?

The building was purchased in January and no rent had been paid in 2019 yet. All rent credited to the purchase was paid in 2018 and taken as a deduction of rent expense.
 

#2
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BFStax wrote:How do I reconcile on their books the credit towards the purchase price so the fixed asset listing is correct at $400k?


You're presuming $400K is the correct amount. Because the decrease in the purchase price was due to previously deducted items, I would argue the proper tax basis of the building is $377,000.
~Captcook
 

#3
BFStax  
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CaptCook wrote:You're presuming $400K is the correct amount. Because the decrease in the purchase price was due to previously deducted items, I would argue the proper tax basis of the building is $377,000.


Yes, I was presuming that but after thinking about your comment it makes sense that their basis is only the $377k.
 


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