Tax question re: swaping notes for property - Posted by Robert

Posted by John Behle on March 14, 2000 at 14:29:47:

It’s a world of difference. If you trade a note, he has a gain as if he received cash. You will have a short term capital gain for the discount in the note. Possibly you could lower the price of both to compensate, but I think that could be questioned.

Besides, there is a simple easy way that has many advantages. If you buy a property and create new seller financing, it has the same tax advantages - no matter what the collateral is. You can’t trade a note for real estate. They are not like kind property and the note is considered “boot” and taxable as if it were cash.

In other words, whether his condo or the note you buy is collateral makes no difference. The key is that a new note - seller financing - is created, no matter what the collateral.

So, you take the same note that you would have traded and just use it as collateral. You own the note and create a new note secured by it. You collect payments and then pay the seller on your note. There are also MANY other advantages. I’ll pull an excerpt out of the Paper Game book so you can see some of them.

Tax question re: swaping notes for property - Posted by Robert

Posted by Robert on March 14, 2000 at 13:23:39:

A friend of mine ownes a condo that he rents out. He has owned this condo for over 20 years and has depreciated it completely. He does not want to sell it because the condo has little to no basis. He does not want to get hit with capital gains.

I told him I would trade his condo for a note of equal value thereby avoiding capital gains. I realize he would have to pay taxes on the monthly note payments. Am I correct in assuming this?

Thnks

Robert

Re: Tax question re: swaping notes for property - Posted by Bud Branstetter

Posted by Bud Branstetter on March 17, 2000 at 22:36:40:

Another thing you can point out to your friend is that if he sells with owner financing he can report the gain from depreciation on the term of the note just like his gain. He does not have to recapture the depreciation at the sale.