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There is no tax consequence of switching out collateral. Your tax will be determined based on the sales price of the property you are selling and your basis in the property
So, if you switch out collateral before the closing of the sale or after the closing - there is no tax consequence of either scenario
My cost basis 925000 sell price 1600000
So your gain will be $675,000 and you will owe tax of 20% as capital gains
What about his capital gain tax
So your capital gains for this sale is $135,000
He won't have any tax if he is purchasing the building
You only have capital gains when you sell.
His cost 600000
But he's not selling anything, he's purchasing
So he has no capital gains tax...only you do as the seller
Now, when he goes and sells this property THEN he will have tax
thinking about capital gain if he is relending the money
There is no capital gain for relending money
Lending money is not taxable
I am talking about the person who sold the property to me and did owner finance
So you are purchasing the property?
I thought you said you were selling?
I bought a property 3 years ago for 925000 paid some cash and srller financed tge rest
now I still owe 400000 and I want to make payment on it
They paid the capital gains three years ago, based on a sales price of $925,000
after I sell this property
They won't have capital gains when you pay off the property
it was instalment sale
Okay, then their accountant can tell them what their capital gains are during the year of the sale, because it is very complex
I would have to look over all their tax returns to figure it out
That's why I am asking you
Yes but I can't calculate their gain, because I would have to have all their records.
I can calculate your gain because this is the year of your sale
Your gain is simple
Theirs is complex. Their accountant who has been doing their returns would easily be able to tell them what the gain is in the current year. I could not.
They were only paying capital gain on payments that were received
and after cover their cost basis
Yes, but there are calculations that go into play based on the percentages that were paid each year. I cannot calculate their installment gain.
I would have to look at their prior year tax information.
my qestion is
Your question is what?
If they take the payoff they will pay capital gain for the whole thing vs if they continue to lend the money they will only pay capital gain based on the total payments they receive every year
Okay, I can answer that but I cannot calculate the actual gain. If you pay off the loan then they will pay the remaining capital gains tax in the year you pay off the loan. However, if you keep making payments they will recognize the gain as you make payments.
Is there anything else you need from me today?
the technical question is when to do the colltoral change brfor closing
or after closing
It doesn't matter.
if the receive money and relend it they recognize gian
therefore they will pay capital gain
but if they change collateral before closing they never tuch the money
Yes...if they receive the funds they will have the gain
I thought you were just swapping out collateral, that no money changed hands?
Yes I am asking when to swap collateral is timing important
The timing doesn't matter...they are not receiving payment they are just swapping out collateral
basically on day of closing we will just sign new note on the new collateral
That is fine ... that should not impact their capital gains
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