Real Property Exchage for Note (live deal):
Tax Question (two scenarios) - Question builds so please read all three bullet points and provide feedback:
1) Capital Gain – seller purchases a property for 40K. 20 years later property is fully depreciated and seller wants to sell for 100K. At that price what is long term capital gain? Is current rate 25%? 25K capital gain due March 15th of year earned?
2) Installment sale – wants to exchange. But is considering an offer from buyer to purchase property for 100K. Seller then carries a note for full purchase price secured by a deed 1st trust deed - $100K @ 5.5% interest, amortized over 30 years, due in 10 years (installment sale). What is capital gain tax consequence? Is there any – I would think so as property is fully depreciated. How would gain get paid if installment sale/or simply put what is tax to seller? 1) Are payment taxed at long-term capital gain rate? 2) Is interest taxed as ordinary income?
3) Is seller able to exchange gain into note (note he is carrying back for buyer in scenario#2)? If so, would gain be payable when note is paid off by Buyer? How can seller exchange gain into note if at all? Any suggestions? I’m trying to work above deal and need to present some “hypothetical” tax advantages for seller to confirm with his tax guy? Any way to exchange gain into note carried back by seller or similar concept? Suggestions encouraged.....