HBU when property appears to have no value?

[The Warrior Monk]

There are those who say you can't give a property a negative value although I disagree with them. This debate has been on this forum multiple times.

I don't disagree that an appraiser, or anyone else, can "give" a property a negative market value.

I also don't believe that a negative price will be paid,

"in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus."

If faced with a valuation scenario such as this, say for legal purposes, I would discuss with the client that a hypothetical scenario would need to be created and conditioned given that negative price transactions do not occur under the condition set forth in the market value definition, or that another type of value might be appropriate.

 

[ZZGAMAZZ]

Thanks for the heads up I seem to have stumbled into it on this one.

No more debating for me....i'll be over here in my lane writing reports

From a local, microeconomic perspective one might simply ask the contiguous neighborhoods how much theoretically they would pay to increase the size of their parcels by purchasing this lot. ???

 

[Artemis Fowl]

I have a local landlord that "gifts" these types properties to aspiring investors. Seen it twice now...they soon realize what happened and ends up in tax sale. They may get it for 1$ but it costs them a lot more. I guess you could say it has negative value. Doesn't meet the MV definition tho...1 party was definitely not well-informed.

 

[J Grant]

A negative value is a different concept than a negative market value. Nearly everyone agrees a property can have a negative value -their negative value wrt to the property will does not recoup at sale the $ spent to mitigate the problem, the property is a financial drain while holding, and presents a loss to seller when sold . A total terrible investment but nobody guarantees owning RE will have a positive result.

WRT the concept that there could be a "negative MV" ...to have a Market value, the property has to transact at MV definition terms, and these affected properties when they finally do find a buyer or taker would not meet MV definition terms of sale including any reasonable estimate of open market exposure -

 

[ZZGAMAZZ]

I have a local landlord that "gifts" these types properties to aspiring investors. Seen it twice now...they soon realize what happened and ends up in tax sale. They may get it for 1$ but it costs them a lot more. I guess you could say it has negative value. Doesn't meet the MV definition tho...1 party was definitely not well-informed.

Wouldn't that defeat the tax benefits of the gifts?

 

[Artemis Fowl]

Wouldn't that defeat the tax benefits of the gifts?

I'm not going to attempt to rationalize their actions.

 

[Elliott]

So I ask again, what is the value of the land?

And, what is the cost to raze?

PS-I recently did a burned out house with a land value of $125,000. I estimated the cost to raze and clean up the site at $15,000. Along comes the AMC and says, well we have this piece of paper, signed by no one, with no heading, that says it will cost $50K to clean up the site. They pressured me into lowering the value and I basically said, give me a signed estimate from a local contractor to clean and grade the site and we will talk again, otherwise, I'm not changing my estimates. Never heard from them again. Shenanigans played by AMCs?

 

[Mark K]

Wouldn't that defeat the tax benefits of the gifts?

Actually, if the owner and had paid more than $1 then he could write off the loss. If he paid $10,000 and sold it for $1, there's a $9,999 capital loss to write off. We'll ignore any depreciation claimed over the years for this discussion.

If he gifted it to a non-profit charity he would have to prove that it was worth more than $1 to receive any charitable contribution benefit. That might be tough to do.

 

[Elliott]

This almost reminds me of 'gifting a house to a fire department for practice.'

"The Tax Court noted that the taxpayer’s appraisal of $76,000 for the lake house was based on a fee simple and unencumbered interest and determined by using the comparable sales method, not taking into consideration the above restrictions. Thus, the court determined that the appraisal was based on the assumption that the lake house would be available for residential use and affixed to the lakefront property indefinitely—facts not present in the case before it. The court then considered the testimony of two house-moving experts who both determined that the likelihood of a buyer purchasing the lake house to move it from the site was zero because the characteristics of the lake house and its site rendered a relocation of the structure infeasible. Applying the willing buyer–willing selle test set forth in Regs. Sec. 1.170A-1(c)(2), the court determined that the house was worthless."

No Deduction for House Donated to Fire Department

This item discusses the determination of the amount of the charitable deduction for the donation of a house to a fire department that intends to use the house for training exercises—including burning it to the ground.

www.thetaxadviser.com

 

[alebrewer]

I also don't believe that a negative price will be paid,

Isn't 'gifting' the property to someone or some entity the same as a negative price being paid?