Seller Finance Structure

[John McDonald]

Hi all, I’m in the middle of a seller-financed acquisition of an asset-heavy hospitality business, and I’d appreciate feedback on the deal terms, promissory note structure, and tax implications.

This is a family-to-family transaction designed to benefit both sides. The structure is as follows:

• I receive the property as a gift, based on its appraised value
• We sign a promissory note for that value, with the intent to pay it off at refinance
• I assume operational control immediately and take the lead role in managing the asset

I’m modeling this as a hybrid between a gift transfer and a seller carry, and I want to ensure:

• The promissory note is compliant with IRS rules to avoid imputed interest
• We’re not triggering unintended capital gains exposure on either side
• The deal protects both parties in case of default or delayed refinance

If anyone has experience with family-based seller financing, promissory note structuring, or tax overlays in hospitality or real estate, I’d love your input. Happy to share anonymized deal terms or dashboards if helpful.

Thanks in advance!

[Patrick Roberts]

Quote from @John McDonald:

Hello Rick,

I don't think you're understanding the full situation, let me clarify.

The property is transferred via deed, I sign a promissory note for a set amount, and record a deed of trust. This creates a formal lien, making it a financed purchase-even though there is no cash change in hands.

Once property is appraised, I apply for a cash out refinance. As the lender sees the lien, and agrees to pay it off at closing. Looking to schedule under delayed financing exception, from the lien being recorded, paying it off at closing, and the transaction mimics a cash purchase.

Concerning the property transfer would be filed as form 709 (life time gift exception) from the current owner to me. 

As well as the note is receivable, essentially they are lending me money secured by the property. So when the note is paid off via refinance, They receive principle repayment which is not taxable income correct? 

Just curious if anyone has any experience with similar transactions? And if there is other things to keep in mind, thanks.

 I dont think YOU are understanding the situation fully. You cannot gift a property and sell it via seller-financing at the same time. Either it's a gift, which is being given to someone without any consideration or payment, or it's being purchased. 

Seller-financing is not the same as a cash purchase. That's why it's called seller-financing. 

Claiming an asset sale is a gift when it's not so that someone involved can skip paying taxes is tax fraud. This isn't some gray area or "loophole". It's tax evasion. 

You're scheming ways to deceive both the lender and the tax authority in this situation. This is fraud. You need to stop.