Ideas on how to shield lease buyout from taxes? (for sale, real estate) - New York City - New York (NY) - City-Data Forum

lovegreen88 · 09-02-2022, 03:35 PM

Legally.

LL approached me and asked to buy me out of stabilized lease. I have not gotten back to her, I was not expecting the offer and don't know where I'd move. I think her desire is to combine the units and de-stabilize them.

When thinking of a number, what I'd need to give up the contract/lease depends a lot on how much will be taxable. If there are ways to shield it, I can ask for less money obviously, as a smaller chunk would be taken out of taxes.

Has anyone had experience with this? I've consulted lawyers and they've all said it wouldbe taxed as long term capital gains. And I need to speak with a tax attorney I'm told. I will do that. I just wonder if anyone has ideas.

lovegreen88 · 09-02-2022, 03:58 PM

I am so new to this whole forum and don't know how it works yet, but to the kind person who PMed me, since I am new, I am not even allowed to respond to your messages, the system won't let me. Sorry! I have asked the webmaster to remove the restriction.

But I wll respond here - I know it can get 1099d, but there are techniques I've heard of - such as getting paid out in multi-year installments, so as not to meet the yearly capital gains threshold. etc.

BugsyPal · 09-02-2022, 04:04 PM

You need to speak with an attorney and or tax advisor.

Courts have ruled lease buyouts can go different ways. Some saying it's taxable as capital gains, other as normal income, etc...

You need to know how LL is reporting money to IRS. If they are issuing a 1099, and you fail to list money on tax return, IRS will come a calling.

lovegreen88 · 09-02-2022, 04:21 PM

Hi, thanks - I am not looking to do anything illegal at all. Even if I didn't get a 1099 I'd report it. I did a lot of reading here and elsewhere and saw the back-and-forth RE capital gains, spoke with a few lawyers who deal with buyouts and the consesus is it would be long term capital gains. Though I read here that it would be on an individual basis, so I should report it as capital gains and if I get audited and the person at the IRS ruling doesnt agree, I pay back taxes. BUt i saved all the rulings people cited and would bring those up.

But I've heard other options besides an outright buyout - like the LL could put me in another building that is nicer and I'd continue to pay rent I'm paying now, etc. Or the landlord could sell me a house at a discount. Just creative solutions. It could even benefit her - she owns multiple buildings - if she can combine these unit in my building to command a higher rent, but cant combine units in another building, she could move me to one of those buildings. It doesn't have to be a straight cash buyout.

I don't have real estate experience so I'm sure there are ideas I am not thinking of. Yes I will be calling a tax attorney early next week! Thanks for your advice.

lovegreen88 · 09-02-2022, 04:23 PM

And to the person who has been PMing me, I just want you to know I appreciate your messages, and i still can't respond to you even though I want to. Just want you to know I got your messages and I appreciate your points. Wonder if a lawyer holding money in escrow to be released in multi-year installments could solve that issue that you brought up.

bluedog2 · 09-02-2022, 04:47 PM

Work out a deal with the landlord where you get at least 1/2 of the payout in cash in a brown paper bag passed from her to you mid closing, not in front of the lawyers. They have to leave the room while this happens.

Esacni · 09-02-2022, 04:48 PM

It all depends on the sum of the buyout. If it's $100K or less (which is most likely is), are you really looking to save a few thousand USD?

Buyouts nowadays aren't even that lucrative. Unless it's a terrible building, you're better of staying. There aren't even that many low COL places to move to anymore.

lovegreen88 · 09-02-2022, 05:01 PM

Quote:

Originally Posted by Esacni

It all depends on the sum of the buyout. If it's $100K or less (which is most likely is), are you really looking to save a few thousand USD?

Buyouts nowadays aren't even that lucrative. Unless it's a terrible building, you're better of staying. There aren't even that many low COL places to move to anymore.

It will be 6 figures, she has let me know. How many 6 figures I dont know. The building is not great but could be if she were to devote care to it. Edit and I am willing to think about leaving NYC. I wish I knew exactly what I wanted. But maybe it's good that I'm open to different types of solutions. And I hear you on the not many LCOL places to move. I've been eyeing housig prices and they are still wonky. Ideally I'd like to be rehomed or buy a house somewhere I guess - but yes houses are so expensive. Am hoping housing prices come down a bit.

lovegreen88 · 09-03-2022, 06:59 AM

person messaging me - every time i try to respond to you, it says i have reached my maximum daily limit of -1 (yes, that's negative one) messages and the restriction will be lifted on Jan 1, 1970. Not kidding. Gotta get a time machine! See here: https://imgur.com/a/B9xRa7x

Thanks for asking an accountant. Makes sense. I will too. I am wondering if the LL would be willing to consider alternate arrangements like simply moving me to one of the other buildings in their portfolio, selling me a unit at a discounted price, etc. Ah well. I'll talk to an accountant this coming week.

Stepfordct · 09-03-2022, 07:38 AM

Best bet though is to ask her exactly how much $$ she is willing to give you. That number will be less than ultimately what they are willing to pay. Play the game. When you think you have the max number, then think about the other options. Look at other properties they own. What could that amount get you there.
If say the amount is 150k and they had a condo for sale they would rather give you 175 off the price than pay you 150k cash.