Creative Deal Structure to Reduce Tax Liability with Real Estate Component

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by a searcher from University of Illinois at Urbana-Champaign
in Denver, CO, USA

2yrs ago

Creative Deal Structure to Reduce Tax Liability with Real Estate Component

Seller does not want to part with the real estate upon closing in order to reduce tax bill in the year of the transaction. I would prefer to close on the real estate now rather than work a purchase option into the LOI and reapply for financing years down the road.

If including a deferred payment in the cap stack, what is a good way to structure this, and how quickly can I repay the buyer? Recommendations on where to hold the funds until payment? Interest bearing account?

For rough sizing, business is about $2.5M and the RE is $750k.

Thank you all, and happy hunting!

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reply by a searcher 2yrs ago
in Providence, RI, USA

To help the seller potentially reduce their tax bill and still secure the property now, you can structure the deal where you pay for the real estate over time. Use a promissory note to outline the payments and secure it with the property. Alternatively, you can lease the property and have the option to buy it later. The money for the deferred payment can be kept in an interest-bearing escrow or trust account, ensuring it's safe and earning interest until it's paid. Agree on a repayment schedule that suits both parties and get professional advice to keep everything legal. This way, you get the property now, the seller manages their tax bill, and the payment funds are securely held until they're due.

reply by an intermediary 2yrs ago
from The University of Chicago in Chicago, IL, USA

You can buy the RE now with full lender funding, Pay the seller nominal amount, hold the rest in an escrow. Escrow is released when certain conditions (like environmental study) are satisfied (which will be inredactedSeller has the option to pay taxes when cash is received. Check with your tex akspert.