Options other than 1031 exchanges to decrease tax implication

3 Replies

Hello. I’ve been in conversation with an owner of a self storage unit who is looking to sell in the near future. We’ve discussed different creative financing options. The option that is most appealing to me and my current situation is to assume his current loan (bank is agreeable), seller carries a portion thus making my percentage down less. He is looking to sell with the least amount of tax implication. His tax accountant has advised him to 1031 exchange the property. I’m less inclined and able to purchase the facility if he needs to fully cash out and cannot carry back a note. The seller is up for any creative financing option that benefits both of us. Any suggestions that can appeal to both sides and encourage the sale to move forward?

Suggest you find him a lender. The 1031 should be at no cost to you. It is his problem if he is not able to find something. 1031 is more restricted now. Even capital gain tax is greatly reduced. Those who do not want to pay tax often are not serious sellers.

@Kelly Skeval

You can lower sale price and increase interest rate and use prepayment  penalty to push income over more years. However, long term capital gains rate is traded for interest income which may be at a higher tax rate but is dependent on the seller financial situation. 

You may be able to buy the storage business and land separately but I am not sure if that is an option based on your post. 

@Sam Shueh makes a good point on  lack of seller motivation. 

Talk to a cpa and see if they have any ideas -checkout  @Lance Lvovsky , @Brandon Hall , @Ashish Acharya , all on BP. 

@Kelly Skeval , It's entirely possible to combine your best case scenario with his best case scenario and do a 1031 exchange with some element of owner financing.  The 1031 can be made to work with owner carry depending on the situation.  They may have thought of this and dismissed it because of circumstances.  But more likely they  don't know it can be done.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.