Deferred taxes on a Creative Finance deal

[Jaret Lara]

Hi Everyone, 

I'm looking for advice on deferred taxes on a possible hybrid creative finance deal I'm trying to put together on an off market property. 

This is the current situation:

House is 250K ARV, built in 1990, good middle class neighborhood in Indianapolis, house is in good condition, currently rented till March. Seller still owes 108K on the mortgage but has a good chunk in equity. He has been renting out the house 20 some years and also has been depreciating the property. He wants to sell but is hesitant because of capital gains tax that he may be hit with if he sells. I talked to him about a 1031 exchange as a possibility, which he may consider but he also has additional questions as to how the taxes play into a creative finance structure.

Given that he wants close to market value, its a good property and he wants to sell without being hit capital gains, I thought this might be a perfect situation for a creative finance. 

I'm a newbie in this area, and would like advice as to how to structure a hybrid deal. Also, what kind of structure would help him mitigate or defer taxes he may own if we go this route. 

I have to call him with a proposal of a deal. So, if anyone has advice for me I'd greatly appreciate it. Moreover, if anyone is interested in this deal to add to their portfolio and would like to work the deal with me, that's also welcome. 

Thank you for your time, patience and advice.

Mark Jaret

[Jaret Lara]

@Dave Foster Thank you for taking the time and advice. Sounds like a 1031 exchange is the simplest form and would be the best option for him as to the taxes. 

Now with regards to the second option, can we do a subto on his mortgage and then 1031 the amount he will carry? If so, how does the 1031 exchange work in this case? Does he still have to buy another property with amount he is getting from the owner carry?