All Forum Posts by: Robert Hetsler

David is correct, the only thing I would add to that is that you need to have a firm understanding of your basis including any depreciation taken since you have owned the property so you have a very close estimate as to your tax liability prior to making any final decisions

I agree with both Davids, Bill as well as Mark and Ned. (Basically everyone who replied to your post).  Bottom line is that if you are exchanging the current property for sure and not simply engaging in an analysis to determine if it makes Finanical sense for you, then depreciation in not really an issue for you at this point in time because, assuming all other requirements are adhered to, then it is something you need to keep track of so if you sell and cash out during your lifetime it will become part of a necessary calculation when determining your ultimate tax liability.

The only thing I would add is that you are correct that the exchange fees you would incur, even if the deal did bust up and the contingency clauses etc... all are certainly plausible ways to protect you.   However, as the market picks up, Sellers are less likely to sign deals like that so what I have found, as an investor, is to move forward by finding some off-market properties or start formulating some relationhips with the bankers who head up the division of the special assets.  They always have something on the market that will qualify and which typically also has a huge profit built in from day one.  Jumping back to off market opportunities, I have a guy that I use who specializes in the student housing sector and he builds about 20 million in assets each year in that space and keeps about 80% for himself and sells the remaining through 2 or 3 small channels and they are always at about 98% occupancy so I say that to say that it is really not that difficult to find a property that qualifies and then you always have the fail safe options if you are pushed up against a wall.  Bottom line, is that I invest quite a bit and I will shop as far in advance as possible with all my attention focused on the off market properties because I am finding emails solications all the time whih are pitching off market properties and also groups on linkedin that do the same.  I have gotten down to wire a few deals but am always able to pull something out that works well and within my criteria of 8-12 % cash flow within aoub 4-6% appreciation so keep on doing what you are doing and it will happen.  Call me and I can make some instroductions if you need it.

There is no sales tax liability as of December 31, 2015 on residential real estate but there is on commercial but that burden, via the lease, should be placed on the tenant, even though the landlord would typically collect and pay to the Florida Department of Revenue which, depending on multiple factors (really it comes down to dollar amount) could be daily, monthly or quarterly.  However, generally monthly is normal, at least that is what I do for all my commercial properties in Florida.

Since the taxpayer is the one that benefits of the tax deferral rest with the taxpayer so you would have to take title to the replacement property in the same taxpayer name as the property you sold. There are some special rules for unique circumstances such as divorce or a disregarded entity (single member LLC that does not elect to be taxed as a corporation). This is a general answer as there are always possibilities if there is enough planning time or additional facts that could have an impact on the answer.

If you have taken depreciation then you would have depreciation recapture tax most likely and that is taxed at a different rate than capital gains, which is I believe 25%.  So yes since depreciation has an impact on your basis, you would have to include it in your overall tax liability analysis.

I have purchased and sold every type of property from billboards to self-service car washes, from vacant land to TICS or DST's. These have been all properties owned by me and I have also, as a licensed real estate agent, Nationally Certified business Valuator, Nationally Certified Forensic CPA, a Licensed CPA, Chartered Merger & Acquisition Professional by the Middle Market Banking association, played every single type of ancillary role you can name throughout a real estate transaction from beginning to end, including, handling about 3000+ closings as my first job out of law school. I have provided expert testimony courts in more than 30 different type of cases, across multiple different states, most of which involved a real estate component. I have taught continuing legal and accounting professional education as well as spoken to groups as large of 2000 real estate investors on replacement property.

I have clients as large as Fidelity National or as small as my neighbor looking to purchase  a $45,000 condo investment (I have a few of those myself) and done so across almost all 50 states.  I reached a highly coveted contract with Charge Schwab that was picked up by most media outlets for the management of the hundreds of millions of dollars I am responsible for referring out and believe me that was a vetting process like no other! I was attracted to them because they also provide DST solutions and some clients really like that solution and it certainly has attractive features but at the same time it certainly not for everyone. I been involved with TIC transactions and self-directed IRA transactions with a company that has been able to do things I did not think were possible. I have a partner in a Georgia Self-Service carwash and the legal partner is a self-directed IRA which was very challenging in areas I never anticipated, like opening a simple bank account. Bottom line is, I have seen it all, made every mistake possible on my own transactions and learned from each mistake made, carry all the necessary malpractice insurance, Fidelity Bonds and licenses (never any claims or complaints) necessary to assist anyone in any state find suitable replacement property. I have a vast network of off market properties that I am provided with and many contacts with the directors of special assets at large financial institutions such that I have been able to place people in properties with 7 figures of equity simply because they had enough cash to cover the banks note. These are not everyday situations for sure but they do happen. Finally, if I am not the right person to assist you, I will be the first to tell you and also the first to find you someone that can assist you. I spend about half of my work life putting people in touch with a person or company that can and will offer you better assistance than I can. Sometimes I am compensated for that referral but never by the client, always by the person or company to whom is receiving the referrals. This is always disclosed and is also something that does not increase the cost to the client. Contrarily, more often than not, the client receives enhanced service at less costs because my clients will benefit from my vast network of referral sources to whom I have worked with before or, if not, have been vetted and approved by me or my team. Bottom line, is that if you are in need of locating replacement property and your desires are specific, it does not cost you anything to see if my resources are something you can benefit from. I love real estate with a passion and that is why I enjoy working with everyone from the sellers agent, to the insurance agent, and every other professional along the way. I can always learn something from you and you can probably learn something from me so reach out and lets see if I can help.

Go to the market place

@Joel Owens

David is correct.  The best case scenario is that the seller fund the note at closing, preferably in the same name as seller to avoid an immediate recognized gain. Then the seller essentially is both the Seller and the bank (2nd position) lien holder at closing and then all the money is held with the QI.  As such, you have a perfectly fine 1031 exchange, assuming all of the other 1031 conditions are met. However, I suspect the Sellers CPA will say, assuming option one above is not a viable option, that option two will result in a taxable gain to the extent of the 400,000 not funded and can the gain paid as the payments are received ( remember if seller is self-employed and historically makes estimated tax payments, that they need to include the estimated gain/pro-rata portion of depreciation recapture taxes, in those estimated tax payments  in order to avoid any unnecessary penalties and interest since the tax liability is reasonably able to be determined.  

At closing, one option I would suggest running by the CPA is the option of having an interest only note that balloons in two years (  preferably structured closer to year-end ) with a prepayment penalty equal to that of the gain as there is some very interesting things you can do if a note is structured that way in this ticket or scenario.   Also, depending on the tax bracket and age of the seller it might be worth exploring the option of the 400,000 being paid  as a consultant days during certain revenue benchmarks  or occupancy benchmarks bench marks being met. Obviously, benchmarks that are not going to be an issue to meet.   Again, there are certainly options that would not be relevant if I knew every detail this is tuition but there are certain cases that warrant a deeper dive where tax avoidance, albeit creatively, can be accomplished.   

 One other final option is to have a short-term non traditional lender step in and carry the note on behalf of the seller such that the 400,000 is funded at the closing and that would allow the  Games in recapture tax, if applicable, to be saved. It goes without saying that it all depends on the tax rate and the interest rates that are in play because I recently met some lenders that were funding things a unbelievably reasonable rates (very little docs required because these loans solely exist for this purpose.  I do not know the company name but I know at least one exists for this exact siuation such that it might warrant a closer look in this situation.  As always, an option worth exploring only if it makes financial sense as is true with all of the scenarios listed above. For example, if the seller is an individual taxpayer that is in a lower tax bracket and is well past the age of 50, then these options may not be something worth exploring but I mention them solely because, it seems that lately I have seen tax attorneys become extremely creative, within, of course, the letter of the law.

Finally, I apologize for any type a graphical or grammatical mistakes as I am dictating this in my cell phone.because I'm not near my laptop 

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