Owner wants to payoff seller-financed comm prop and...

Tax Liens & Mortgage Notes
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Owner wants to payoff seller-financed comm prop and...

Roger Grubb
Realtor · 94806 · Member since 2021 · 13 posts · 2 votes

I am a Realtor and represented the seller on a commercial property about 5 years ago. The seller offered seller financing of about $500K and now the owner wants to re-fi and give my client a lump sum.  My client offered financing in order to receive a regular monthly income in his retirement but this seems to have thrown a wrench in the gears. He's now worried about getting taxed in one lump sum.

Is there any way that my client can continue to receive the same monthly income without getting taxed in one lump?

Bigger Pockets people are so awesome!  ;)

Thank you,

Roger

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Mark B.Pro Member
Rental Property Investor · Morgan Hill, CA · Member since 2012 · 212 posts · 64 votes
5y

The seller could adjust the terms of the note to reflect the refi terms. It may be more advantageous than the tax consequences. If done, hopefully he can negotiate a prepayment penalty so it doesn't happen again, at least so soon.

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  • Charles Carillo
    Rental Property Investor · North Palm Beach, FL · Member since 2018 · 2k+ posts · 1k+ votes
    5y

    @Roger Grubb

    Did the seller put any type of prepayment penalty in the mortgage?

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  • Roger Grubb
    OP
    Realtor · 94806 · Member since 2021 · 13 posts · 2 votes
    5y

    Not that I am aware of.

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    5y

    @Roger Grubb

    Not a tax specialist but I cannot think of one. My first thought was a 1031 but you cannot 1031 a note.

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  • Mark B.Pro Member
    Rental Property Investor · Morgan Hill, CA · Member since 2012 · 212 posts · 64 votes
    5y

    The seller could adjust the terms of the note to reflect the refi terms. It may be more advantageous than the tax consequences. If done, hopefully he can negotiate a prepayment penalty so it doesn't happen again, at least so soon.

    2Reply
  • Bob E.
    Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
    5y

    @Roger Grubb  Of the 500k how much was profit/taxable?  It would be fairly easy to redeploy capital into a new loan but I think the big nut here is the capital gains tax.  

    Your seller might look into a substitution of collateral if the buyer has other property(s) he would consider leveraging.

    The question for the buyer is how much are they saving on the new rate?  Is it cash out or straight refi?  I doubt your seller would want to put cash into the deal if it is a cash out.

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  • Roger Grubb
    OP
    Realtor · 94806 · Member since 2021 · 13 posts · 2 votes
    5y

    Thank you so much for these responses. Very helpful. I will pass this along.

    Cheers,

    Roger

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