Decreasing capital gains - Posted by Tim (CT)

Posted by Lawyer Lisa on March 18, 2001 at 08:38:10:

Whether or not your proposal is legal depends on your state’s law. Most states have some interest limitations between private individuals. These limitations can be different or even non-existent in business transactions though. But you don’t really need to know the answer to this question for your situation.

Yes, the interest would save their capital gains, but it most likely creates a worse tax problem for them. Interest income is taxed as earend income using the standard tax rates. At best this is equal to the captial gains rate. At worset it is significantly higher.

Depending on how creative your sellers are and what they plan to do with the money there are ways to save all or part of the capital gains. If they are investing in real estate, of course they can do the 1031 exchange. If they will invest in most other types of investments they can do a combination charitable trust and insurance trust with a private banking relationship that will allow them to effectively double the amount they receive from their property.

Decreasing capital gains - Posted by Tim (CT)

Posted by Tim (CT) on March 17, 2001 at 08:45:49:

Let’s say I have a seller who’s willing to lease/option a property to me with a buyout price for 100k in 36 months. Can we put on the contract that the buyout price is 75k at 33.5% interest (75,000 + 25,125 = 100125)? Will this decrease their capital gains? Is this legal? If so, I would think this could be a big selling point to the seller. They’re getting their asking price yet their capital gains is 75% of what it should be. And, if it is legal, how would you write this up in the contract?

Any thoughts would be appreciated.