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I’m interested in buying a piece of commercial real estate which is worth 10 times what it was worth when bought in 1968 (perhaps 5 times the basis). I can, within bounds, specify (as opposed to dictate) my own terms. Assume I’m willing to pay $320,000 (I personally think it is worth another 100K) and it was purchased for 40,000. It is owned free and clear and the owner is currently 85. The objective is avoidance of capital gains tax, which would penalize him, but moresoe (since he doesn’t need the money) his heirs.
What are my options?
I think I could do a lease purchase with a renewable term which would survive him (I’m trustee of his personal trust and one of the heirs)
I suspect I could give him principal in the form of a down payment (and/or supplemental installments), which didn’t exceed his basis, and then have a renewable interest only note which he holds and which must survive him.
Posted by Diane (TX) on November 27, 2002 at 20:26:32:
Well, Steve, since the owner is 85, you’re right that you don’t want to have a completed sale until after death. Offhand, the lease option sounds like the best bet. Does the property cash flow enough for you to meet a lease payments?
The note might pose a problem if depreciation has been taken on the property. All the gain that’s from depreciation would be recaptured as income in the year of sale, regardless of the amount of the note principal actually paid.
Also, I’m not a lawyer, but the other heirs might challenge this sale. They may argue that he wasn’t competent to contract with you, for example.
Check with a lawyer to make sure you’re doing this correctly.