Cap Gains / 1031 Exchange / Seller Financing

[Brendan Harrison]

Scenario: I buy a house from a Seller for 900K, but they still owe 200K.

I give them 200K as my down payment, so they can pay off their loan.

They carry the remaining 700K back with Seller Financing.

They had owned it as a rental property.

Do they pay Cap Gains on anything? On 200K? On 900K?

Thanks!

[Brendan Harrison]

@Chris Seveney

I am also reading about depreciation recapture. It appears as though it could be an immediate tax on the recapture. Any CPA’s available to explain this portion, please?

So let’s say they bought for 400K, 17yrs ago. If they are depreciating on the 27.5yr plan, then they depreciated 14.5K per year. Over 17yrs that is approx 250K.

The way I am reading it, they would need to pay immediate cap gains on the 250K depreciation recapture. So approx 37K (based on 15% tax rate) assuming their joint income is below 496K for the year.

Does this sound accurate?

Any other strategies to consider if I want to buy the property, but the Sellers are concerned with taxes?

Thanks again!