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Tractor Talk Discussion Forum

Re: Real Estate taxes

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Frank 41

03-20-2013 19:08:04

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Your gain will be difference of what the ground was appraised at the time of the trust being set up and what the price is when sold. Here in central IL in the last 10 years, ground has appreciated $10k. So if this trust was set up here in 03 and sold now, you have a $10k gain. I would suggest to take the money and pay the taxes yourself. If the buyer did not pay the taxes you would be SOL big time! Best to check with an accountant or tax lawyer as the laws are always changing. Also the buyer of the taxes will have to be paid. I have seen that interest from 0 to 18%. Good luck, I am sure someone will try to pick the bones.

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03-21-2013 04:51:59

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 Re: Real Estate taxes in reply to Frank 41, 03-20-2013 19:08:04  
Without a doubt, best to talk to an attorney who deals in real estate transfers.

My unexpert opinion: It depends on how honest you are.

If the buyer paid your taxes for you first, then bought your land for the difference later - you'd still "legally" have to pay taxes on that pay-off amount, at least as a "gift". But there's really no reporting to the IRS so, it's all about what you tell them...

So yes, your capital gain would be reduced by the tax amount.

BUT the buyer would be foolish to do this for many reasons. First and foremost, he'd be foolish to trust somebody to follow up with a reduced sale after paying their taxes for them. And I don't think too many attorney's would eager to write up a legally binding contract for such a tax-scamming deal.

Next, the buyer would be foolish to do this because he'd be ensuring he pays inflated capital gains if he ever sells the land.

Just to use round numbers, say the buyer pays off 40,000 in taxes - then pays you 60,000 for a 100,000 property.

Hard times hit the buyer and he has to sell the property for a loss - say 90,000

He'd STILL have to pay taxes on 30,000 in capital gains.

Even if he sold it for a profit, he'd have to pay taxes on that additional 40,000 of capital gain.

I just don't see any upside to the buyer.

You could discount the price... but that kinda defeats the whole purpose of trying to get tricky in the first place.

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