Seller financing discount points, taxable income, or deduction

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Seller financing discount points, taxable income, or deduction

Travis Brizendine
Omaha, NE · Member since 2014 · 57 posts · 15 votes

We are under contract on a property. We have 60 thousand dollars in a 1031. The seller is willing to charge us 30k in points to seller finance the deal. However, we would like 25k back after closing for repairs etc. Question: the funds he receives as “points” are they tax deductible to him, or is he taxed as income on that since it’s being received.

Thanks a ton in advance. *numbers are hypothetical*

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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
7y

Money received is never “tax deductible”....points would be earned interest income.  You getting $25k back after closing is going to cause some 1031 issues I believe.  

Not sure why you’re trying to structure it this way.  Maybe tell us why.

@Dave Foster may have an idea.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    Money received is never “tax deductible”....points would be earned interest income.  You getting $25k back after closing is going to cause some 1031 issues I believe.  

    Not sure why you’re trying to structure it this way.  Maybe tell us why.

    @Dave Foster may have an idea.

    2Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    7y
    Originally posted by @Travis Brizendine:

    We are under contract on a property. We have 60 thousand dollars in a 1031. The seller is willing to charge us 30k in points to seller finance the deal. However, we would like 25k back after closing for repairs etc. Question: the funds he receives as “points” are they tax deductible to him, or is he taxed as income on that since it’s being received.

    Thanks a ton in advance. *numbers are hypothetical*

     It’s very hard to follow what you are trying to do.

    Is this 30k points a part of the purchase price. If it is, it basically is a down payment. 

    If not, why would you get it back. 

    And, the money seller receives is almost never tax deductible in this case. 

    May be tell us what you are trying to accomplish. 

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    1Reply
  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Travis Brizendine

    "However, we would like 25k back after closing for repairs etc. Question: the funds he receives as “points” are they tax deductible to him"

    Sign me up to not only receive money but also get a tax deduction for it.  ; )

    1Reply
  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    7y

    @Travis Brizendine

    I will join the chorus: we cannot figure out your plan. Please describe the entire deal, and in more detail.

    In either case, if you're an a 1031, it calls for working with a good tax accountant one-on-one. If on your own, there're too many traps that can cost you way more than professional advice.

    1Reply
  • David Beckley
    Investor · Saint Louis, MO · Member since 2015 · 204 posts · 37 votes
    7y

    @Travis Brizendine A very good friend of mine just showed me how to legally defer my taxes into perpetuity. PM me for info. Simply amazing!

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    @David Beckley Unless it’s a qualified installment sale, or going into opportunity zones....do please share.

    Some guys have “ideas” that don’t really work.

    0Reply
  • David Beckley
    Investor · Saint Louis, MO · Member since 2015 · 204 posts · 37 votes
    7y

    @Wayne Brooks do you have an email I can send her contact info to discuss

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    @David Beckley Never mind......I see you’re on here promoting some “company that sets up trusts”....for a piece of the fee I’m sure.

    It would be less sleazy if you left out the lie about “some friend just told me” BS.

    1Reply
  • David Beckley
    Investor · Saint Louis, MO · Member since 2015 · 204 posts · 37 votes
    7y

    @Wayne Brooks so disappointed in your response. She actually is a very good friend of mine. So sorry to offend

    0Reply
  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @David Beckley

    Why not share and let objectivity be the judge?

    There are ways to legally defer taxes.  They're far from secret....

    1Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    @Eamonn McElroy Yeah, but then you wouldn’t make a commission for steering them to the “trust creation firm”.

    1Reply
  • Travis Brizendine
    OP
    Omaha, NE · Member since 2014 · 57 posts · 15 votes
    7y

    @Travis Brizendine all,

    The idea was that we would not be utilizing all of our 1031 funds. The only way to spend it all would be to give it to the seller in discount points. I don’t want to make those funds tax-deductible for the seller however. Does this make more sense?

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  • Travis Brizendine
    OP
    Omaha, NE · Member since 2014 · 57 posts · 15 votes
    7y

    @Travis Brizendine @Eamonn McElroy @Michael Plaks @Wayne Brooks @Ashish Acharya

    0Reply
  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Travis Brizendine

    "I don’t want to make those funds tax-deductible for the seller however."

    I'm curious why this even matters and why you care what the tax ramifications are to the seller if you're the buyer?  Shouldn't you be focused on the holistic investment return on your end and only your end?

    Generally if you give someone money in a business setting it is taxable income to them, not a deduction.  When he/she spends money in a business setting, it is a deduction.

    1Reply
  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    7y
    Originally posted by @Travis Brizendine:

    @Travis Brizendine all,

    The idea was that we would not be utilizing all of our 1031 funds. The only way to spend it all would be to give it to the seller in discount points. I don’t want to make those funds tax-deductible for the seller however. Does this make more sense?

    Actually, it makes even less sense now 

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