Lower RE Purchase price to not incur higher property taxes and buy business separately
Accounting Q: sale price $1M. Can I purchase a property at city assessed value price $500k and then purchase business separately at $500k to avoid paying property taxes on $1M? Does the broker get paid on entire sale?
[{"id": "hc9yjr5", "text": "I can't speak on the taxes aspect and the terms of payment may differ depending on your state but your agency agreement should at least cover the payment of the broker.", "replies": [{"id": "hcaxgqx", "text": "Is a bank going to approval a loan like that?", "replies": [{"id": "hcclgtu", "text": "I'm assuming you are in a state that reassesses real estate taxes to purchase price. If not this question isn't as big of a deal for states that assess based on sale comps.\n\nYou can allocate more to the business and good will and less to real estate to lower the reassessed value upon purchase. If it is an extreme allocation the assessor may dispute the allocation and you would need to talk to a local appraiser about the risk of an assessor using a higher market value than your allocated cost basis.\n\nYour loans get a bit messy with buying an owner occupied business and real estate. \nA real estate lender will often restrict a loan to the lesser of 75% of appraised real estate value (no business value) or lower real estate purchase price. They can make some exception for your cost allocation basis being below appraised basis so that they will restrict the loan to only 75% of appraised value or 55% of total purchase price. 55% is just an example, and may not be the actual restriction your bank uses.  You should talk to the lender about how much they will allow a lower cost allocation basis from appraised value. \n\nKeep in mind this is 75% of appraised real estate value not full purchase price so your real estate loan would be far less than 75% of purchase price on both the property and businesses. \n\nYou would then need to take out a business loan to finance the business if you are looking to get close to 75% of purchase price of both the property and businesses.", "replies": [{"id": "hcd5s2f", "text": "Brilliant summary, thanks! Yes, in NYS.  Reassessment to purchase but scattered length of time between assessments.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hcbbxea", "text": "I asked the same question a month ago and received a few replies from people who were not 100% sure. The seller will be tax disadvantaged most likely because they can\u2019t 1031 the business profits. Your next buyer will have to accept this scheme or else you\u2019re going to pay a massive gain on the property when you sell.\n\nIf you\u2019re in a low tax city/state, I would not try this. If you\u2019re in a high tax environment, I would try this and let me know how it goes ;)", "replies": [], "depth": 1}, {"id": "hcfkwp3", "text": "A specialized lender for healthcare will likely lend against the total value including the contribution of the business to the going concern value. But I have not seen that happen in any other industry. If you are buying an industrial building with a manufacturer or distributor, the value of the business will be a separate transaction and funded under stricter terms (As in we are not going to use a 25 year amortization on the business acquisition).", "replies": [], "depth": 1}, {"id": "hco11vo", "text": "Common work around is purchasing the LLC that holds the property. I do not understand what business you\u2019re talking about. Are you really buying an operating business that owns a property?", "replies": [{"id": "hcoc6u7", "text": "Correct and yes buying the LLC is the plan.", "replies": [], "depth": 2}], "depth": 1}]