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Paying Off Pre-Existing Loans
Q:
Subject: Exchange Question
My wife’s mother wants to sell her bare land (non-adjacent) resulting in a large capital gain. She wants to use the $ to pay off her current loan on her primary residence so she can quit her job and retire. Can she do a tax free exchange from the bare land to pay off the property she already owes?
Sincerely,
A:
The answer is a very big NO.
She would have to use the money to acquire new real estate. Paying off loans on previously acquired property is not like kind and would not save her any tax on the land sale.
She should consult with her personal tax advisor about other options; such as selling the land on the installment basis, where she carries back a large portion of the sales price. That way, the capital gains taxes would be spread out over the next several years, and she would be receiving monthly payments and earning a much higher interest rate than she would from bank account savings accounts.
There are plenty of other possible scenarios, depending on your mother-in-law's goals and circumstances.
Kerry Kerstetter
- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 7/31/2005 05:21:00 PM Send this post:
