Hey r/tax! I'm a CPA and I have a real estate agent who is asking about something his client's CPA is trying to do: substitute an EXTREMELY aggressive purchase price allocation (PPA) in lieu of a cost seg. It's a ~$500k condo, and the result of the PPA is 86% of the condo being bonus eligible. I've heard that a PPA could work in theory IF you had enough evidence and documentation for FMV for all the identified items, but this one just seems completely bonkers. I've seen PPAs several times when I've had clients buy or sell businesses, but never on a little rental condo like this.
Am I crazy for thinking this CPA is out of his mind? Or is there something I'm missing?
Purchase Price Allocation in Lieu of Cost Segregation for a Rental Condo
byu/Shinehaha intax
Posted by Shinehaha
3 Comments
This SOB wants your client to pay taxes on ordinary income not LTCG so his client can get a better tax deduction. They are really pushing the envelope on this one too. Now if your client owned a business & had a number of properties as well as other tangible assets I can see, but a condo at $500,000.
You are the guy signing the return, so you own whatever this is. Be wary.
The purchase price allocation should be agreed upon prior to closing by both parties, especially important since it can have tax implications material enough to affect the selling price. Unfortunately many deals close without specifically addressing it, but it does need to be agreed upon by both parties