I am trying to buy an apartment building, but the seller is concerned that if I buy it 100% contract for deed he will still need to pay the capital gains.
Questions:
Does he need to pay all the capital gains if he contract for deeds the property?
What is the best way to handle this, in order to minimize is taxes?
Thanks Guys!
A Contract For Deed is an installment sale.
If the seller is not a dealer to real estate for this transaction, the seller is only taxed on the portion of his profit that is actually received during the tax year.
If the seller is flipping this property – acting as a dealer for this transaction – then, the seller must recognize all of his profit on the sale as taxable income when the contract is entered. Hopefully, the seller receives a large enough payment in the first year to pay the taxes due on the entire profit for the transaction.
The contract for deed can also be structured as part of the sellers 1031 exchange, but it gets complicated. Let me know if you are interested and I’l walk you through the process.