Dodging Capital Gains?

Question

HI All,

I had a property mortgage free and Owner financed it Dec 2020.  Capital gains are deferred.  However somehow the buyer just sent me a payoff in June and that will be a large amount of change dropped into my lap.   You cant 1031 Owner Finances right.  Is there no way to dodge the tax man on the full capital gains?

Basit Siddiqi · Answer

You can look into a Qualified Opportunity Fund(QOF).

Dave Foster · Answer

@Mark C., unfortunately the gain was realized when you sold.  the owner carry is a finance note not associated with the sale.  But gain is triggered as payments come in allocated to return of principle, gain, and interest.  The first is not taxed, the 2nd would be taxed at capital gain, and the 3rd taxed as ordinary income.

No way to 1031 now.  Sometimes it's possible to include it in a 1031 with the sale if you can replace the note from your exchange account.  But it's too late this time.

Mark C. · Answer

I owned the property about 7 years.  My accountant set it up as an installment sale. I havent heard from accountant yet either on same question.

Bruce Lynn · Answer

Did you sell it and buyer's name is now on the deed AND owner finance it?

Look for a creative CPA....some of that might depend on when the transaction happened or will happen, not when you actually get the money.   Did your CPA characterize it as an installment sale if you transferred the deed at closing?

Chris Seveney · Answer

@Mark C.

You cannot 1031 a loan.

Also mortgage interest received plus the monies above your basis would not have been long term capital gains it would of been taxed at ordinary income.

Eric James · Answer

I'm not an expert on 1031. But I do k kw that you can't do o e with the cash coming to you. You have to use an intermediary.