80 year old wanting to sell and not pay taxes? - Posted by reinvestor

Posted by David Krulac on April 02, 2006 at 07:10:03:

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80 year old wanting to sell and not pay taxes? - Posted by reinvestor

Posted by reinvestor on March 31, 2006 at 23:58:24:

An 80 year old relative wants to sell his property that he owes nothing on for $100,000. He doesn’t want to pay taxes on the sale of it. He also wants to live on the cashflow from it (if he leased it or put a note against it), and then pass along the proceeds to his heirs after he passes on.

Accountants and attorneys have only one recommendation, to do a lease option to the party interested in purchasing the property and then make his trust the beneficiary after he passes on. Any other good ideas how to structure this? I’ve done a bunch of deals, but haven’t done one like this yet.

Re: 80 year old wanting to sell and not pay taxes? - Posted by David Krulac

Posted by David Krulac on April 01, 2006 at 07:56:00:

like the dealmaker says if a personal residence, or a second home, NO TAX.

If an investment property the Federal tax would be the sale price minus expenses of sale minus the basis and costs of acquisition. Even if depreciated to ZERO, there would still be a basis in the land value, so that the maximum tax would be LESS than $15,000.

First thing you need to do is figure out the actual tax owed, then go from there.

I helped a friend do a deal where the seller wanted to pay NO Federal Income Tax, No state income tax, No closing costs, No transfer tax, etc. etc. etc. Additionally the seller did not want to do any seller financing even for a second mortgage.

Additionally the buyer wanted 100% financing and wanted to pay NO closing costs.

We did the deal and everybody walked away happy.

P.S. This was a deal with an 80 year old owner who wanted $100,000. Its like deja vu all over again.

Re: 80 year old wanting to sell - Posted by dealmaker

Posted by dealmaker on April 01, 2006 at 07:42:56:

I think you’re suffering from trying to overthink this deal. Sell for $100K, NO TAXES, if it’s his residence, $15K if it’s investment ppty. Seller finance for income, or just put the proceeds into Treasury instruments, laddered or not. Leave the note or T-bills in his will.

dealmaker

Re: 80 year old wanting to sell and not pay taxes? - Posted by Jack

Posted by Jack on April 01, 2006 at 21:57:25:

Isn’t the interest rate 28% on depreciation recapture?

Re: 80 year old wanting to sell and not pay taxes? - Posted by Natalie-VAl

Posted by Natalie-VAl on April 01, 2006 at 09:24:52:

David,

The only way he would avoid tax if it were a second home would be to move into it for 2 years, correct?

You know more about this than I do…shouldn’t the seller just sell it using the installment sales method so that the seller pays tax only as he receives the money?

–Natalie

Re: 80 year old wanting to sell and not pay taxes? - Posted by Dons

Posted by Dons on April 01, 2006 at 09:00:59:

Hay David,

How did you structure the sale? Inquiring minds want to know.

Thanks,

Don

oops, meant isn’t recapture tax rate 28% - Posted by Jack

Posted by Jack on April 01, 2006 at 23:18:56:

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Re: 80 year old wanting to sell and not pay taxes? - Posted by David Krulac

Posted by David Krulac on April 01, 2006 at 14:12:25:

yes and yes.

Re: 80 year old wanting to sell and not pay taxes? - Posted by David Krulac

Posted by David Krulac on April 01, 2006 at 14:23:48:

  1. the seller said that she wanted $100,000 tax free.

  2. the federal/state/local/income/transfer tax would be something like $35,000.

  3. seller paying buyers costs about $9,000.

  4. seller pays own closing costs about $5,000.

  5. buyer gets VA 1st mortgage for $150,000. Zero down fixed for 30 years.