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Real Estate Sales Price Reduction To Avoid Capital Gains Tax

 
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Old 04-02-2012, 09:54 PM   #1
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Real Estate Sales Price Reduction To Avoid Capital Gains Tax


I am looking at buying some property and was playing with the numbers and came upon a plan. The buyer has depreciated the property and will have to pay capital gains tax on the gain.

So he can save $150 for every $1000 the sales price falls. I figure this money should belong to me.

First of all, there are some $3000 of property taxes to be paid upon closing. Obviously, if the sales price is reduced and I pay the property taxes, then there is $450 to be saved there.

Secondly, I thought, "what if he sells the appliances to me separately?"

So I think one could value the appliances at $5,000 without raising too many eyebrows. By reducing the price of the property by $8,000, it saves $1200 in capital gains. Plus it will keep the assessed value and future property taxes down.

Can anyone find anything criminal about this?
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Old 04-02-2012, 09:58 PM   #2
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Re: Real Estate Sales Price Reduction To Avoid Capital Gains Tax


I don't think the local Sheriff will knock on your door...

However, the IRS could be another thing...

Talk with a CPA, Tax/Real Estate Attorney...

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Old 04-02-2012, 10:11 PM   #3
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Re: Real Estate Sales Price Reduction To Avoid Capital Gains Tax


Yes loopholes are great, unless someone else got there first and now they are closed. Talk to the CPA first
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Old 04-02-2012, 10:20 PM   #4
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Re: Real Estate Sales Price Reduction To Avoid Capital Gains Tax


I thought someone out there would be able to give an opinion.

I figure it doesn't matter who pays the property taxes. Nothing wrong with giving someone the money to go pay them for you.

As far as selling the appliances separately, I can't see anything wrong with that either.

Conversely, if someone really liked a piece of furniture, they could say that they wanted to buy it with the house, or that it be included with the sale of the house. One could reasonably assume that it would be reflected in the sales price.

Let's say a guy had a nice place with an outdoor rec area complete with a nice grill, TV, jacuzzi tub, pool table, and above ground pool. He might list the property for sale with or without it. You could tell him you want to get a side deal on the grill, TV, tub, pool table and pool and have him leave it behind.
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Old 04-02-2012, 10:45 PM   #5
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Re: Real Estate Sales Price Reduction To Avoid Capital Gains Tax


Appliances are a grey area, normally they are included in the price of the property.

Much like your analogy, the jacuzzi and pool are grey areas, everything else, no I think your thinking is fine.

The biggest thing is once the taxman is involved they want their piece and scrutinize pretty much everything. But like Griz said, talk to the CPA before you jump the gun and listen to us.
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Old 04-02-2012, 11:04 PM   #6
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Re: Real Estate Sales Price Reduction To Avoid Capital Gains Tax


Real estate transactions calling out land purchase price, building purchase price, furnishings / appliances purchase price, value of fuel oil, onsite propane, etc are done all the time. The numbers used for each category must be reasonable and supportable.

As for how much you're going to save the person in capital gains, you're assuming they don't have tax loss carry forwards they can use for an offset and they aren't going to do a 1031 exchange. Also, splitting out the value of the appliances doesn't do anything for the seller, but it does give you the depreciation basis for your future tax returns. Same thing with the house value.

As a word of caution to you, I've bought and sold investment properties since the mid 80s. When I decide a buyer is an a**hole, I either reject their offer and their succeeding offers, or accept the offer and stuff them.
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Old 04-02-2012, 11:07 PM   #7
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Re: Real Estate Sales Price Reduction To Avoid Capital Gains Tax


Quote:
Originally Posted by Chris Johnson View Post
Appliances are a grey area, normally they are included in the price of the property.

Much like your analogy, the jacuzzi and pool are grey areas, everything else, no I think your thinking is fine..
The general rule is if it's attached to the house, it's part of the house. Refrigerators, dish washers, washer / dryers are not necessarily part of the sale unless they're explicitly called out.
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Old 04-03-2012, 06:53 AM   #8
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Re: Real Estate Sales Price Reduction To Avoid Capital Gains Tax


Another consideration would be your cap gains when you sell... If the property appreciates and the buyer doesn't do something similar, you'll end up paying it then. It may be 50% by that time instead of 15% now...
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Old 04-03-2012, 07:29 AM   #9
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Re: Real Estate Sales Price Reduction To Avoid Capital Gains Tax


Appliances are not part of the structure... It can be included as part of the deal as a gimmee, and not affect valuation or taxes...

Good luck on getting him to go along with it though...
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Old 04-03-2012, 10:39 AM   #10
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Re: Real Estate Sales Price Reduction To Avoid Capital Gains Tax


And remember this all only applies if the property is a rental, etc. not a primary home. A primary home lived in for part of the last 2 years when sold is tax free if the profit is under $500,000 for a couple.

And you can do this every 2 years for the rest of your life as long as the law doesn't change.


Edit:

Forgot to add, if the home is a rental there are some tricks to make the profit tax free, such as living in for awhile and making it your primary home, etc.

Last edited by Kgmz; 04-03-2012 at 10:42 AM.
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Old 04-03-2012, 05:07 PM   #11
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Re: Real Estate Sales Price Reduction To Avoid Capital Gains Tax


Quote:
Originally Posted by Kgmz View Post

Forgot to add, if the home is a rental there are some tricks to make the profit tax free, such as living in for awhile and making it your primary home, etc.
The rules were changed a couple years ago.
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Old 04-03-2012, 07:36 PM   #12
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Re: Real Estate Sales Price Reduction To Avoid Capital Gains Tax


Sales price (usually) means market value of a unit, so that's what the govt goes off of for assessment. If it goes up, it's immediate where as if it goes down, it's subject to debate as if that's the real "market value" and even if it is, some jurisdictions may not change it, while others will, but will have up to X years to do so.

If there are realtors involved, buyer/seller make a percentage of sales price, so they may not be too keen on lowering it and if ya try to make side deals, it'll involve them and if they do, they risk losing their license.

If it's an owner that owns the property outright, then deals can be made, but see first paragraph.

talk to an attny.
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Old 05-11-2012, 09:36 PM   #13
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Re: Real Estate Sales Price Reduction To Avoid Capital Gains Tax


We can put this to bed. The seller was a bit of an a-hole and wasn't flexible at all. Still think it is a plan worth doing. Bought the house anyway and will try again on the next one.

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