Investor · Bensalem, PA · Member since 2011 · 146 posts · 93 votes
Hey fellow BP'ers . I really could you some sound experience and advice on this one. Still have this multi-unit in the pipeline. I have a seller willing to hold a short term note (12 months) was going to do a lease purchase since I am short on down payment funds. Was hoping to do this as a purchase instead of a lease purchase but seller said If we transfer title with only 10% down. $33,290 (Sale price 332,900) that he would have to pay capital gains tax on the full amount. 1) Is this accurate? 2) Is there any way around this.? I want to pull the trigger on this deal, but I'm really concerned that I wont be able to come up with additional down money at end of term. If I did as a purchase, then it would be a simple cash/out refi. I'm thinking I may just have to walk away on this one, and chalk my deposit up as lesson learned
From what I understand, the cap gain will be spread out, but he will have to recapture all taken depreciation in the year of sale - installment or not.
I can't sell with 10% down, either. Transaction costs and the 25% recapture put me in the red.
A master lease option may be a good strategy for a tired landlord. Bone up on and become a 'master' of Master Lease Options @Jonathan Jewell!
I'm confused - the master lease option doesn't transfer title, so the seller wouldn't have to pay tax on the entire amount.
(I'm not a tax lawyer, so I suppose it's possible the IRS could classify it as an "installment sale," but even then, the gain would be spread out. Right? I can't see how the IRS could require all depreciation to be recaptured without a deed transferring title.)
With a master lease option, you're looking at 3% down instead of 10%. Worth a shot.