HELP! Seller wants to sell, but doesn't want to pay the taxes

[Kevin Brenner]

Looking for some BP tax experts/investors on this one:  

I was cold calling potential sellers the other day and talked to an older gentleman who owns over 25 properties in my area.  He has considered selling in the past, but doesn't want to get stuck with all the capital gains taxes.  I mentioned how he could avoid some of the tax through seller financing. 

I understand that with a long note, the payments would be relatively small, which would greatly reduce the taxes for the seller by limiting his exposure per year.  Are there any other tax benefits that I'm not aware of (from the seller's perspective)?  Generally speaking, what terms do you think I should present to him? 

[Dave Foster]

@Kevin Brenner, there's a "gotcha" in an owner finance - He has to recapture all depreciation in the year of the sale. If he's held those properties for a long time that could be very very significant. He could transition you in as a partner by forming a new holding company and you buy in to the holding company. He could lease them to you on a NNN basis and sell you an option to purchase.

Or as @Aaron K. mentioned the 1031 is a good option.  Even if he doesn't want to continue managing at the same pace there's several end games using the 1031.

1. Consolidation into fewer more expensive properties - maybe one with onsite management.

2. 1031 into really nice transitional properties to slowly convert to primary residence over his retirement.

3. 1031 into NNN commercial properties

4. 1031 into commercial fractional properties that are 1301 compliant.  These come as Delaware Statutory Trusts and tenants in common projects.  Totally passive, totally 1031 compliant, decent cash flow for the long haul.