Creative Deal Structure to Reduce Tax Liability with Real Estate Component

searcher profile

June 11, 2024

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

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!

0
11
92
Replies
11
commentor profile
Reply by a searcher
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.
commentor profile
Reply by a searcher
from The University of Chicago in Los Angeles, CA, USA
David - I read your note a couple times to try to understand the situation. If you are are at the LOI stage, you could still be 2-3 months before closing on the business###-###-#### won't be that far away.

So when you sign the agreement to purchase business the business also simultaneously sign the agreement to purchase the RE, but have RE deal close Jan 1.

During the window between the close of the business and close of the RE, you will need some type of lease agreement for several months.
commentor profile
+9 more replies.
Join the discussion