Getting out of 1031 exchange
I am interested in a 7 unit property. This is the last investment property held by this owner. Asking price is around $800,000. Owes about $250,000. He bought it with 1031 but wants to get out this lifestyle and will not be buying another.
He says he would prefer not to offer seller financing but may consider up to 100,000. Is there a form of purchasing that we could offer that would help decrease or postpone the tax repayment for him?
Thank you in advance for all information and thoughts.
Most Popular Reply
I assume you're talking about depreciation recapture and capital gains tax. If that's the case and the seller and isn't looking to 1031 into another property there's not much they can do. They can utilize prior year loses to offset the gains but that may not be a valuable option.
I'd have another discussion about a seller-financed deal. The tax hit from capital gains is broken up over the life of the loan rather than having it in one tax year. That's a HUGE tax saving strategy. As the buyer you could structure the terms in way that makes the seller happy. Sell them on the down payment, 5-10 year fixed rate, or balloon payment. Maybe they will reconsider that deal. If the property needs work and you improve it (increase NOI) and ReFi at year ___ you could pay off the seller financing loan. That approach depends on current rents and how you can improve it. Just spit balling ideas. Good luck man.