Capital-gain taxes on property sales when funds/proceeds were received in a different year than the loss of property/sale?

Question

When you sell property within some year but receive the actual sale proceeds later on a different day (possibly in a different year!), how do you treat this for tax purposes?

In particular:

1. What do you use as the "Date sold or disposed of" on Form 8949?

2. What happens if this discrepancy impacts the long-term-ness of the gains (Schedule D and Form 8949)? Does it become long-term because you received the funds after one year of ownership, or does it become short-term because you disposed of the property before one year of ownership?

3. If the answer is that you have to list the date you disposed of the property:

   • Does this mean you have to write down a previous year onto the tax form? (e.g., "date sold or disposed of" might be Dec 20, 2023 for a 2024 tax return?)
   • When do you actually owe the taxes in that case -- in the year of the sale, or the year of the tax return?

4. If the answer is that you have to list the date when you received the proceeds:

   • What (if anything) can you do about the fact that the market value of the property on that date may be significantly different from the one you sold at? Wouldn't this raise a lot of eyebrows? Are you supposed to explain this somewhere else in the form...?

Answer 1

Generally, in the United States, the disbursement of funds in real estate transactions is done at closing, i.e.: when you transfer ownership. At most the difference may be 1 day, so if you close on Dec. 31st after the wire transfer cut-off at the escrow bank, the funds may be sent out on January 1st (or whatever the first business day is that year), but that's a really rare edge case.

Generally, you'd plan for that. If you want to close in year X, plan for a closing date a couple of days prior to the year end to have a buffer. If you want to close in year X+1 - extend the closing date into that year.

The general approach is to recognize income when it is available to you. Once it's allocated to you at escrow, escrow is following your instructions on distribution, and the money is under your control. Same with 1031 intermediaries. So the closing date would be the date of sale and recognition of income for tax purposes.

If you're talking about intangibles (i.e.: stocks or crypto), then the date of recognition is similarly the date of the transaction, not the date of settlement.

Facts and circumstances matter. If you think that your particular case is exceptional you'll want to talk to a tax professional (EA, or a CPA or Attorney licensed in your State).

What (if anything) can you do about the fact that the market value of the property on that date may be significantly different from the one you sold at?

Why would it matter?