Seller Wants To Avoid Paying Taxes
I have a seller who has owned two SFH. homes for 15 year. He owns them outright. He wants to sell them, because of the landlord hassle, but he wants to avoid paying taxes.
He is willing to sell me one house for 50k and the other for 110k. I would give him 60k cash and he would hold a mortgage of 100k at 9% amortized over ?? with a five year balloon.
Figured I could do all the paperwork and put the property into a land trust, to transfer ownership. Then I would give him the 60k cashiers check. Then after the five years he would be paid in a cashiers check for the balloon. Since we do not close at a closing agent, there would be no reporting of proceeds.
What he does with the cashiers checks and his taxes are not my concern. I will not do anything illegal, but he can do whatever he wants.
Any other ideas?
Brenda
Figured I could do all the paperwork and put the property into a land trust, to transfer ownership. Then I would give him the 60k cashiers check. Then after the five years he would be paid in a cashiers check for the balloon. Since we do not close at a closing agent, there would be no reporting of proceeds.
Sounds like you are an active participant in a tax evasion scheme.
gettiquick,
I cannot believe that you, as a licensed person, can give such advices!
Thank you, Newkid!
They both (Brenda and the seller) could get used to color orange, if they do that.
Be very, very careful. I agree with NewKidd. Looks, smells and tastes like tax evasion, and you could have some liability.
[addsig]
Just my $.02 cents.
If I were the seller, I would
1. Create a Trust whereby I am the sole beneficiary and my family friend and my bank are co-trustees.
2. Transfer the properties to the newly created Trust.
3. As beneficiary, direct my family friend as co-trustee to sell the properties via the Trust to Brenda.
4. As beneficiary, direct my family friend as co-trustee, to instruct the closing agent to disburse a check for 1% of the sales proceeds to the beneficiary (myself) and to hold the remaining 99% of the sales proceeds until further notice.
5. As beneficiary, direct my family friend as co-trustee, to open a bank account in the name of the Trust.
6. As beneficiary, direct my family friend as co-trustee, to instruct the closing agent to wire transfer the remaining 99% of the sales proceeds to the bank account.
7. As beneficiary, instruct the bank as co-trustee to arrange a secured loan in an amount equal to 99% of the sales proceeds, using my residence and 100% of the newly wired sales proceeds as collateral.
8. Reinvest the funds into another real estate related, income-producing venture which will yield a return of at least enough to cover the interest payments on the secured loan.
Since I as the seller would only receive 1% of the sales proceeds at the closing and a secured loan for the remaining 99%, this transaction would qualify for installment sale treatment under I.R.C.§ 453(b) and ninety-nine percent of any gain realized as a result of the sale could be deferred until I as the seller received payment of the remaining 99% or a fraction thereof.
Darryl Evans.
[ Edited by Darryle-CA on Date 11/20/2005 ]
Darryl,
Since you as the seller have full control of the funds from the sale, I would think that the IRS would tell you that you have constructively received the funds -- all 100% -- at settlement and recompute your tax return accordingly.
If the seller wants an installment sale, just let the seller carry a note for whatever portion of his sale price he wants to defer.
Quote:
On 2005-11-20 08:12, NewKidInTown3 wrote:
Darryl,
Since you as the seller have full control of the funds from the sale, I would think that the IRS would tell you that you have constructively received the funds -- all 100% -- at settlement and recompute your tax return accordingly.
If the seller wants an installment sale, just let the seller carry a note for whatever portion of his sale price he wants to defer.
NewKidInTown3,
I stand corrected. You are right. In order for the above transaction to qualify for installmment sale treatment under I.R.C. Section 453(b), another party other than the seller (such as an accountant, attorney, financial adviser, family friend or relative outside of the immediate family) would have to be the trustee.
Please read my post again, it has been edited.
Darryl Evans[ Edited by Darryle-CA on Date 11/20/2005 ]
Where is the arms length sale here? Also the trust papers you set up give the powers of the trustee to do and perform any legal acts. Even the close family friend is not supposed to do as you say but to do only the power vested in them by the trust as trustee or even co-trustee. . No closing agent just means that; not that the seller does not have to report anything about the sale. Tax time is when he reports his gain. I am never advocating something unlawful. I still say the only way it can be deferred is involving a 1031 exchange. Trusts are taxed too, either as beneficiaries or as a separate entity. And if a beneficiary broke the rules would stand to lose bigtime. AN installment sale is fine and the seller would be taxed just on the capital gain for each year received and according to tax brackett and tax situation it could diminish the owed taxes. Especially in lower income earning years. This has always been a valid way to reduce the tax hit. In regards to the 1099 that is talked about reporting....if they are not of the class of closing agents under IRS rules there is no 1099 by the buyer required nor do I think by the seller.
Getitqwik
(1) You said: Where is the arms length sale here?
Can you please elaborate on what exactly you are referring to?
(2) You said: Also the trust papers you set up give the powers of the trustee to do and perform any legal acts.
The trustee can only perform legal acts as directed by the beneficiary.
(3) You said: Even the close family friend is not supposed to do as you say but to do only the power vested in them by the trust as trustee or even co-trustee.
Since the trust is a beneficiary directed trust, the family friend as trustee can only exercise any powers vested in him, after I (the beneficiary of the trust) direct him to do so.
(4) You said: No closing agent just means that; not that the seller does not have to report anything about the sale.
This statement sounds very confusing. What are you trying to say?
(5) You said: Tax time is when he reports his gain.
If you are referring to myself as the seller/beneficiary, you are correct.
(6) You said: I am never advocating something unlawful.
I agree.
(7) You said: I still say the only way it can be deferred is involving a 1031 exchange.
I say you are 100% wrong. Please refer to I.R.C. §453.
(8) You said: Trusts are taxed too, either as beneficiaries or as a separate entity.
With the exception of business trusts, which we are not discussing, they are not taxed. They are pass-thru entities such as S-corps.
(9) You said: And if a beneficiary broke the rules would stand to lose big time.
What rules are you referring to? Who would lose “big time”?
(10) You said: AN installment sale is fine and the seller would be taxed just on the capital gain for each year received and according to tax bracket and tax situation it could diminish the owed taxes.
You are correct.
(11) You said: Especially in lower income earning years.
Ok.
(12) You said: This has always been a valid way to reduce the tax hit.
It does not reduce the tax hit; it defers it like a 1031 tax deferred exchange.
(13) You said: In regards to the 1099 that is talked about reporting....if they are not of the class of closing agents under IRS rules there is no 1099 by the buyer required nor do I think by the seller.
What class of closing agents under what I.R.S. rules are you referring to?
Darryl Evans
getitqwik,
Unless disallowed by the terms of the Trust, a beneficiary can verbally direct a trustee to act .
Darryl Evans
""Unless disallowed by the terms of the Trust, a beneficiary can verbally direct a trustee to act . """ I have a problem with that. Because it is commonly held where the identities merge the trust is non-esistant. Also especially for real estate all things are to be in writing, how does the trust get by that. I am not saying it is not true, SHOW ME IN THE LAW? I mean why have a TRUSTEE?
Quote:
On 2005-11-20 22:08, getitqwik wrote:
""Unless disallowed by the terms of the Trust, a beneficiary can verbally direct a trustee to act . """ I have a problem with that. Because it is commonly held where the identities merge the trust is non-esistant. Also especially for real estate all things are to be in writing, how does the trust get by that. I am not saying it is not true, SHOW ME IN THE LAW? I mean why have a TRUSTEE?
Getitqwik,
I said: “Unless disallowed by the terms of the Trust, a beneficiary can verbally direct a trustee to act”.
(1) You said: “I have a problem with that. Because it is commonly held where the identities merge the Trust is non-existent”.
In my example, what identities are you referring to and how do you feel they’ve merged?
(2) You said: Also especially for real estate all things are to be in writing, how does the Trust get by that.
Unless otherwise provided by the terms of trust, the beneficiary can verbally or in writing direct the trustee to enter into a written real estate contract with another party.
(3) You said: I am not saying it is not true, SHOW ME IN THE LAW?
What exactly do you want me to show you in the law?
(4) You said: I mean why have a TRUSTEE?
Without a Trustee, the trust is not valid.
Darryl Evans