Sold Business - Need to Prevent Huge Tax Bill - Real Estate?

Question

Hi there

I am brand new here and I am not sure this will be posted, so I am going to make it concise:

I have a business that I recently sold for 4 million.I am going to have a large tax bill.

I did not sell my LLC, just the assets and the inventory.

Can I use this LLC to now buy real estate as a write off? Perhaps just buy something outright as a huge writeoff?

I am having the hardest time finding an answer to these types of questions.

I am not quite sure my account knows what she is talking about.   Would most CPAs know a lot about this stuff?

Is it a certain type of CPA? Or is a tax attorney my person?

Thank you.

Steve Morris · Answer

If he bought a property before 1 Jan 21 (I know, tough), would bonus depreciation help?

Biden's gonna kill that in all likelihood.

David M. · Answer

@Kurt Linwood

Probably more on the accounting side would be the professional assistance you need.

However, I'll tell you this has been discussed before.  In general, taking active deductions is difficult in real estate.  First of all, the sale of your assets and inventory is categorized as what sort of income?  Its not a rhetorical question --- I don't know.  Meanwhile, unless you want to do real estate deals at a loss, you are going to be taking deductions on a rental which will be passive income.  So, your current business profits would have to be passive to be offset by the real estate passive losses.

Furthermore, to have losses to offset, you need to, well, have losses...  In my opinion, that's literally just throwing your money away...  There are strategies to using cost segregation to accelerate your depreciation deductions, but the cost segregation study costs money and you need to buy a sizable property or properties.  I guess for $4M in profit you have the cash to do it, but not necessarily the time since its about the end of the year.

Also, you might be under the misconception that "write-offs" are immediate.  Buying a property is not a "write-off."  if you do any stock investments, you will understand.  If you purchase something for $10 then sell it for $15 you have a $5 profit.  If you buy again at say $11, you don't have a -$6 position.  In this example, you have $5 of profit to report to the IRS.

If you want to chat about this as it might be easier to understand since it seems you have some misconptions, I'd be happy to chat.  Send me a direct message if you are interested.

I hope this helps.  Good luck.

Ashish Acharya · Answer

No you cannot write off the Realeatate to offset your income.

To have the biggest impact, there is a way but highly unlikely you have time to accomplish this. If you had reached out before, this could have been possible.

1) buy an apartment. You don’t have enough time to even do due diligence on this.

2) do cost seg

3) qualify for RE professional. Don’t have enough time in the year to meet the 750 hours.

4) take loss against your gain.

Of course this is high level. I hope your sale proceeds have been allocated to appropriate assets in a tax saving manner.

Bob Norton · Answer

@Kurt Linwood You should discuss your situation with a CPA to determine what your actual taxable gain on your sale will be.  Then, you could discuss some options with him or her.  One option you could consider, as @Chris K. mentioned, is investing in a Qualified Opportunity Zone Fund (QOZ).  This would allow you to defer capital gains up to the amount you invested, plus you will get a 10% tax exemption on the capital gains invested in the QOZ when you have to pay tax on them in 2026.

Pauline Zhao · Answer

Hello Kurt, something to consider might be commodities investment, especially oil and gas investment.  If you invest right,
you can deduct losses form oil and gas against ordinary, even though your
investment is entirely passive. Exploratory operations and development operations are the two types of investments that can create substantial tax benefits, if you simply invest in a stock of an oil and gas company, that won't help you. Usually the expense on initial investments spent on the first year would be a cost and would be depreciate or amortized over the life, however, oil and gas allows deduction at the first year. On top of that, you can also get to deduct 15% of the well's gross income each year as depletion. Something to bring on the table while you speak with your accountant.

Disclaimer: While I’m an CPA licensed to practice in North Carolina, I’m not your CPA. What I wrote above does not create a client relationship between us. I wrote the above for informational purposes. Do not rely on it for tax advice. Always consult with your CPA before you rely on the above information.

Rob Golob · Answer

@Kurt Linwood

Not nearly enough information.

For example, what if the assets have a cost basis of $4MM.

Yes, unlikely, but not even close to the information needed to provide a an adequate answer.

Greg O'Brien · Answer

@Kurt Linwood Id get on this with a tax planner ASAP. Prior to a sale, there are 5-7 viable options to defer or mitigate cap gains. After a sale, you are limited but you can still widdle the tax bill down before 12/31!

Pauline Zhao · Answer

Hello, congratulations on your sales! No you won't be write off the purchase of another real estate property. What you could have done before the sale is maybe a 1031 like kind exchange so that all the gains can get deferred. I'm sure there would have been more options or arrangements that you could have done if you had consulted your accountants before the sales. At this point of time, you need to talk to your accountant right away about the situations and looking into the remaining options on the table. Since it is approaching the year end, you need to do it fast. Good luck!

Ana Rodriguez · Answer

@Kurt Linwood - A CPA is the best person to help you minimize your tax liability. It would have been best to have contacted one prior to the sale, but it is never too late, especially if you plan to continue investing in real estate. Find a CPA who is experienced in real estate.

When selling property, taxes are calculated based on the realized "gain" on the sale, which is the difference between 1. the sales price minus expenses (such as commissions, certain closing costs) and 2. the purchase cost (price you paid for the property, plus repairs, certain closing costs).

A tax professional would need to get more information on your specific situation to determine which options you have at this point.

Chris K. · Answer

@Kurt Linwood

You need a CPA and maybe an attorney to help you with the process. Now ideally you would have hired the CPA before the transaction so that you could have planned it. But unfortunately that time has passed.

Maybe you could do a QOZ deal now to save on taxes. You won't get the full benefit but I believe you would still a get a meaningful tax saving. But just buying real estate alone probably won't be enough. I would immediately find a qualified professionals to discuss. Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Sold Business - Need to Prevent Huge Tax Bill - Real Estate?

Most Popular Reply