Paying Off Commercial Note EARLY And IN FULL!

In California, sold a Strip Mall a few years ago.
Took back a note.
New owner wants to pay off FULL AMOUNT left on note of 1.2 million dollars EARLY!

That means, 1.2 million dollars of CAPITAL GAIN/INCOME in one year!
15% for Federal Capital Gains
8% for State

Uncle Sam has suddenly become my biggest partner!

Any tax strategies/advice will help!

Thanks in advance,

Mrs. Meltzer

Comments(5)

  • 64Ford9th September, 2003

    Did the new owner say why they wanted to pay off early?
    If they are wanting to get a better interest rate, wouldn't it be better to negotiate with them and lower you rate , in order to spare the sudden tax burden?

  • MrsMeltzer10th September, 2003

    Tried that!

    They want to refinance and pull more money out.

    Mrs. Meltzer

  • myfrogger16th September, 2003

    As though this isn't self evident; the first person on my list to call or talk to would be my tax stratagist.

  • wintent16th September, 2003

    I am not certain without pulling my 1031 paperwork out, however I think you could 1031 into other notes (like for like). In CA there are accommodators that will hold the equity provided you work within the 1031 (45 day identify period and 90 day close) rules. You could break down the total into smaller parts and/or take smaller cash amounts, pay the gain and diversify into other equities. Hope this helps.

    P.S I envy you I wish I had you tax problem

  • MrsMeltzer17th September, 2003

    myfrogger.
    Of course we've contacted numerous accountants, lawyers, tax people, etc. All say "just pay the full taxes". Which will be done. Just wondering if anyone knew a different tax strategy.

    wintent,
    Tried that approach. It was explained to me, impossible to do a 1031 since note is from property sold a few years ago. At the time property was sold, that could have been done. Now it's too late, way past that 90 days.

    Note paid off. Too late for any tax strategies.

    I appreciate everyones help, we tried!

    Mrs. Meltzer

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