Real Estate Investor · Peabody, MA · Member since 2013 · 304 posts · 91 votes
Hi Bigger pocketers,
Have a question about a multifamily a relative of mine is considering selling. I'm trying to buy it directly off of him with seller financing. Tax wise would it be better for him if I were to pay him $2,000/mo. Vs getting one lump sum of $400,000. Would he pay less in taxes/ be able to shelter the tax liability through a monthly payment. He owns the house outright. If not are there other ways we could structure the deal to limit his tax liability, he does not plan on buying more property so an exchange is not an option. Thanks for any light you could shed on the situation.
Eveyones individual tax situation is different, but usually if some one has owned an investment property for a long time and has a low basis in the property they can elect an "installment sale" on their tax return for a property they sale with seller fiancing this allows them to take the income on the sale over the term of loan, as not to kick them up in higher tax bracket.
@Thomas Hickey from a tax standpoint, seller financing is going to be a much better option for you seller. You need to consult an accountant to get the best description of the situation, but the seller will get more money over time, and pay less in taxes than if they were to sell it to you 'the convention way'
Eveyones individual tax situation is different, but usually if some one has owned an investment property for a long time and has a low basis in the property they can elect an "installment sale" on their tax return for a property they sale with seller fiancing this allows them to take the income on the sale over the term of loan, as not to kick them up in higher tax bracket.