Tax Strategy When Selling


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I received this question at USTaxAid.com regarding a strategy when selling a property.

Question:

I own a commercial investment property which I intend to sell shortly. This building is owned by my Limited Partnership and my “C” corporation. The building is completely unmortgaged and I have buyer’s offering $500,000 plus. Here’s my question: (keep in mind that I do not wish to buy another property, I just want to pay off the $450,000 mortgage on the home that I live in). Would it be best to hold the mortgage for the buyer or except an offer for $500,000 plus in cash?

Here are my thoughts regarding the original question on the sale.

There are three things I ask when people are asking for a strategy regarding their business or investments:

Where are you now?

Where do you want to be?

What are you willing to change (or not willing to change)?

Breaking down this question, the things I would need to know for the “Where are you now?”

Exactly how the current title is held.

If the property is owned by a C Corporation, in all or in part, there can be some unpleasant tax consequences to the sale. That’s why we rarely recommend holding appreciating property inside a C Corporation. If the C Corporation is a general partner in a limited partnership, its share of that limited partnership will have the unwelcome tax situation.

How much is the basis?

You need to know your basis in the property to determine the taxable gain on the property.

How much is the A/D (accumulated depreciation)?

Accumulated depreciation has to be recaptured at a different tax rate.

Are you or one of the entities involved in the trade or business of real estate to the extent that you or it would be considered a real estate dealer?

If so, you cannot take the Installment Sale treatment on the sale of the property. That means if you carried back a note, you pay tax regardless. No cash, no matter, pay the tax.

When did you buy or acquire the property?

That will determine the type of gain you have on the property.

Was the property a rental property? Passive income/loss or active?

That will also be a determining factor in the type of gain.

As far as “Where do you want to be?”

I believe that you want as much cash as possible to pay off another loan, if I read your question correctly.

In this case, the third question isn’t as applicable. (What are you willing to change?)

My suggestion is that you put together the necessary information and then schedule a consultation with a CPA to review the facts and determine what the actual cash out of the sale will be (assuming your goal is to maximize cash).

Do you have a business, real estate or crypto tax question? There are several ways to ask it:

Hire us as your full-time, full service tax firm. Please contact Richard at 888-592-4769 for more information on what we do and whether we’d be a good fit for you. We’ve recently expanded our capacity and take a few more clients. The spots fill up fast, though, so please don’t wait!

Have a private one-on-one consultation with me. There are a limited number of consultations available each month. If you’d like to have one before year-end, you will need to sign up quickly. You can sign up at https://www.ustaxaid.com/consultation/  Or, contact Richard to arrange for that. He is at 888-592-4769.

Join our coaching program. For about $100 per month, you can ask unlimited questions during the two coaching classes each month plus you will get 2 Home Study Courses most months. (Sometimes the year-end planning sessions do not have Home Study Courses because they are so cutting edge, there just isn’t time.) Plus, you get specials like an opportunity to get an advance copy of my new tax books, as a special gift to you.

You can also ask a question by sending it to https://www.ustaxaid.com/tax-question/.

Where appropriate, I will write a blog addressing your question sometime within the next two months.



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