Purchase Contract States 481k is Real Property 160k is personal.

Tax, SDIRAs & Cost Segregation
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Purchase Contract States 481k is Real Property 160k is personal.

Ken Quella
Cleveland, OH · Member since 2015 · 23 posts · 2 votes

Hello. 

Just curious if some of the more savvy investors in here have ever written a contract based on the above principal. The buyers were looking to keep taxes down by buying my sellers 11 Unit for 640k but only a percentage of the building would have been "real property" and the rest would be considered personal property. Also they wanted to buy their LLC as well.

Is this something a person can do on smaller investment properties as well?  

Thanks!

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    8y

    Yes.  The main reason is probably that they want the property tax assessor to see the property value as $481K not $641K.   However, this only works if the buyer has a lot of cash.  Banks won't want to lend against the personal property in the mortgage.

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  • Ken Quella
    OP
    Cleveland, OH · Member since 2015 · 23 posts · 2 votes
    8y

    That was the goal yes.  Curious how that would work?  Does the title company simply report the sales price at closing of 481k basically? And the county is non the wiser?

    Heres a copy of the contract for others to get a better idea what this might look like.  

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    8y

    @Ken Quella ,  were buyer looking to do cost segregation?

    The allocation is important to the buyer because amounts allocated to depreciable property and wants to increase the value allocated to the personal property because it can be deducted over the life of the acquired assets.

     However, the seller generally should try to minimize the amount allocated to the depreciable property to reduce depreciation recapture and increase capital gain.

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