All Forum Posts by: John Brown

All, My partner and I are in early in the process of buying a property with multiple, 13, duplexes on it. They are all under 6 years old. The owner wants to minimize the capital gains tax he pays so we want to suggest to him to do a master lease to us for "x" amount of time, and we pay his lease fee and hold the rest of the money in this time we will secure a loan to buy using the money we make as part of the down payment. He will do a cash out refi on the property and we will use our loan to pay off that refi. Here is one of our questions can we use the property in question as part of our down payment since we have it under a master lease.

Quote from @Adam Schneider:

@John Brown. Would you mind sharing a little bit more on the container home versus the tiny home? TIA.

 a shipping container home. you can buy them prebuilt. stack them like "apartments" or connect multiple for larger units. structurally sound, weather and fire resistant. they look cool. and because of their size the entire house can be built in a shop (no bad weather days holding up a build.) loaded on a truck and unloaded at your site.

Interested

Quote from @Andrew Postell:

@John Brown if he doesn't want to pay capital gains this year, then lease it until next year and call it a day.  My suggestion here is for you to not advise home on any tax issues.  But if he wants to not pay them this year, then let's execute next year.  Will that trigger something?  I would advise for you to not get into that discussion frankly.  Just go along with him selling part this year and part next year.  Sound good to me.

we did talk about if we buy part this year we will have a first right of refusal clause on the remaining properties on that block and he agreed completely. Im not trying to intentionally advise him i might say something unintentionally.

one more question since it is multiple duplexes would it be a seperate closing for each one or could they roll them all into one loan?

Youre right i did say he does not want to do a seller finance and i agree a ML looks a lot like that except your not doing a down payment, generally, from my understanding and you can walk away at any time.  

@Andrew Postell and @David M. ok gentlemen here is my takeaway from this is 1) I need to study tax code a lot and 2) the only way to mitigate his capital gains tax is probably going to look something like talking him into a master lease and paying him a monthly fee until the capital gains tax is paid for up to a previously agreed upon percent. And then refinancing it in our name to buy it from him and we could add the caveat that we can continue the master lease until interest rates hit a certain point or a deadline is met which ever comes first. I know this is a 30,000' view of the plan but does it sound feasible?

What about single dads?

One more thing since this property is duplexes, but there are several of them, would this classify as commercial or residential if they are all bought at one time?

@Alice V. or @Joshua Christensen when looking to finance a MF property that has tenants with vouchers, since the rents coming in on time. Can this be beneficial in the eyes of the lender and help secure the loan?

Quote from @David M.:

@John Brown first partnerships are pass through entities. Taxation is at the individual level.  If you elected a different tax status, of course that would be … different 

The refi itself has nothing to do with taxation.  “You paid him out.”  So… al of his earnings, ie payment, is reported as .. earnings.. so he pays tax on all of it.  If he had outright sold the properties as least his PROFIT would be the sales price minus his cost basis.  For completeness there would be the depreciation unrecapture and PAL offsets and I’m generalizing the profit calc

Starting to make sense?  You need to follow the accounting, for lack of better term 

 what do you mean a elected different tax status?