Is property tax credit received by the buyer at closing an adjustment to basis or income reported by the buyer?

[aqq2bus]

Client purchased a commercial real estate property. At closing, he received a credit for property taxes unpaid by the seller. The Master Statement from closing shows debit $7318.32 for the seller and credit  $7318.32 for the buyer. Usually, when the buyer pays property taxes after closing, I reduce the buyers expenses by the amount of the credit. This time no taxes were paid. Is this property tax credit an income for the buyer or is it a reduction to basis of the property?

[itonewbie · Accepted solution]

"This time no taxes were paid."

Why is that?  Because the property was exempted somehow?  If there will not be a liability, agree it would be a reduction to the basis.

[aqq2bus]

The property was purchased on 03/19/18. The buyer received a credit for the second installment of 2017 taxes and for 78 days of 2018. Usually the buyer would pay the taxes for the second installment of 2017 around August or September of 2018. After closing, the County Assessor's Office reduced taxes on this property so there is no liability until 2019 and the amount due in 2019 will be much smaller than the credit.  Should I show this property tax credit as liability as of 12/31/18 and just reduce this liability when taxes are paid in 2019? The buyer is a corporation.

[PhoebeRoberts]

I've always just carried it forward to offset future taxes paid.

[aqq2bus]

Thank you

[dd4vols]

Reduction in basis.

[pkellycpa]

Since those taxes are operating activity, pick the credit up as income on your rental schedule if there are no expense amount to reduce subsequent payment. Either way, current impact.

[BobKamman]

@pkellycpa   Please stop reviving threads from two or three years ago.  They're not just water under the bridge, they've been through the treatment plant and flushed back down into the sewers.  

[pkellycpa]

But the sludge has not been purified.