Investor · Albuquerque, NM · Member since 2021 · 44 posts · 11 votes
Hi I currently have a portfolio deal in my pipeline where the owner is interested in selling his 14 units portfolio at $1M and was thinking to 1031 exchange his 1M into a bigger property so he could avoid capital gain taxes.
I am currently thinking about another alternative where he would sell us the property at a loss or the initial purchase prices and then we would structure the remaining equity into a loan to us so he would only receive loan back payments which shouldn't be taxable income.
Has anyone ever done a structure like that or any other ideas how to not be exposed to capital gain taxation on the sale of his portfolio?
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
Let’s pretend it’s not obvious tax fraud. (Hopefully the seller was smart enough to say never talk to me again if you suggested this to them.) Beyond that. You can’t pay back a “loan” unless he gave you a loan to payback. That “loan” would be all the profit. So it’s 100% taxable plus obviously all the interest he would charge. Lucky for him you would probably just not make any payments since you already have all the houses sold to you and in your name. So then he wouldn’t have a gain, he would have lost everything.
If the seller wants to be tax free they either need all the money paid at once so they can reinvest it in a 1031. (So they can’t take payments from any buyer.) Or they have to hold until they die, then their relatives can sell tax free.
At $70k per property average the seller is probably better off just selling one or two properties per year, how much tax can there be on such cheap properties.