Posted by E.Eka on October 14, 2003 at 08:58:02:
I don’t think it would. She can’t avoid taxes. As for deferring, she’d have a certain time frame (I think 180 days) to reinvest the money in another investment. It would have to be an EXCHANGE. Any money received would make that money taxable. If she had her real estate holding in an REIT (Real Estate Investment Trust) it would be treated as a security for IRS purposes and subject to IRA type treatment.
Need to make tax friendly offer. - Posted by Barry (FL)
Posted by Barry (FL) on October 13, 2003 at 11:49:44:
Hello ladies and gents. I’m looking for some options on making an offer and the tax implications for the seller, here’s the story:
FMV 95k
owned free and clear
has been a rental property for 17 years
vacant, needs little if any work
was property managed @ $825/mo market rent 900-950
owner netted $742.50
management company told her they didn’t want it anymore.
wants to sell but is worried about tax implications.
would like some cash to pay some bills, hasn’t said how much. She will be running this by her accountant.
She likes the monthly income from the property but doesn’t want the hassle at her age.
Question a sale on CFD is considered a sale by the IRS and is a taxable event, yes?
I was thinking of making her 3 offers, she’s a friend of my wife, retired 72 y.o.
offer 1 L/O to me, she could get a mortgage for the cash she wants out then she wouldn’t have the capital gains of a sale plus be able to deduct the interest on the loan and still have the rental write off.
Offer 2 sell to me on CFD, she has the extra security of holding the deed, although I believe the tax implications are the same as an outright sale
Offer 3sell to me with owner finance that way she still gets the income that she likes.
Thanks in Advance for your input,
Barry (FL)
Re: Need to make tax friendly offer. - Posted by Brent_IL
Posted by Brent_IL on October 14, 2003 at 03:28:34:
If it’s a buy-and-hold, I’d vote for #1.
She can lease it to you for 99 years at $752.50 a month. She could throw in an option to buy after thirty years or within 12 months of her death, whichever is first occurring, for 125% of today?s price. When she dies, her heirs get a step-up and can sell to you without tax consequences. Over time the extra 25% won’t affect you too much, but it mitigates the disguised sale assumption by the Fed. The rational is that she doesn?t want to burden her heirs with the chore of selling if it?s unnecessary, so she is calling the option. A copy of a letter to her progeny expressing that that?s why she?s doing this may come in handy. George Yeiter has a nice article on incomplete sales at http://www.assets101.com/Articles/ContSale.htm that might be helpful.
Re: Need to make tax friendly offer. - Posted by Jonathan Rexford
Posted by Jonathan Rexford on October 13, 2003 at 13:19:50:
To get a better idea you need to find out where her basis of purchase is for the property. She could elect to installment sale which she will only be taxed on the portion she recieves then she would be taxed on income itself. You mentioned that she is retired? This is also plays a picture because of SSI issues and mandatory withdrawls from IRA or other types of retirement.
If she is a family friend this might be a good time to sit down with her tax professional and really see what type of impact that it might have. Becoming a problem solver really excels the business in these types of situations.
JR
Re: Need to make tax friendly offer. - Posted by E.Eka
Posted by E.Eka on October 13, 2003 at 12:12:35:
There’s going to be capital gains tax implications.
Hopefully her accountant will tell her that.
The only way she won’t pay if it’s a Section 1031 exchange, which I doubt because she wants the money. Or a 1033 exchange which won’t work because it has to be involuntary. She’ll only have to pay around 15% anyway.
Re: Need to make tax friendly offer. - Posted by Randy (SD)
Posted by Randy (SD) on October 13, 2003 at 11:56:04:
Offer 4 Sell to you with Owner Finance - Sell the note for cash at closing. You get to buy with easy terms, she get the cash she wants/needs…
Re: Need to make tax friendly offer. - Posted by Barry (FL)
Posted by Barry (FL) on October 13, 2003 at 16:55:57:
Thanks for the reply Jonathan. She purchased the property in 01/85 for 58k, lived in it for one year while her house was being built and has held it as a rental since 12/85. She has put tiling throughout, new roof painted etc. I would assume approx 12k. So are you saying that If I were to purchase on CFD she would only be taxed on the income or the monthly installment?
Thanks,
Barry (FL)
Re: Need to make tax friendly offer. - Posted by rm
Posted by rm on October 13, 2003 at 16:03:34:
How, precisely, would this help the seller to avoid or defer taxes?
Re: Need to make tax friendly offer. - Posted by Jonathan Rexford
Posted by Jonathan Rexford on October 13, 2003 at 17:24:33:
When I sell on installment I take my profit over time. Income is going to be taxed as it is determining on her tax status.