Lowering Your Taxes
I have 4 rentals in Columbus, Ohio. Approximately one year after the purchase of each property, I get a note from the county auditor. The note explains that they are raising the taxable value of my property to the amount I purchased the property for.
Is it legal to set up an seller finance agreement with the seller where the seller accepts a lower price for the home in return for you paying a higher interest rate.
The higher interest rate would also be tax deductable for you.
Certainly there must be some law against this. Any input you have on this would be much appreciated.
I don't see anything illegal in paying a lower price and giving a higher interest rate on the seller financed note. The seller may object to incurring more taxable income and having a higher total tax bill.
For you the buyer, I don't see the advantage of paying a higher interest rate rate to save a couple of dollars on my property tax bill. Even with the interest deduction, I don't see you coming out ahead over the long term. Don't forget that the property tax is also a deduction.
at my local real estate meeting, we had a speaker called Ed Francis.
in california we pay property tax on the purchase price, what ever it is and there's a prop 13(i think) which states that the tax can only be increased 2%/year.
Ed said that to pay a lower property tax, we should state in the contract that so and so property is being purchased for X number of a coins/notes. the trick is to use coins or notes that has significant value as a collectors item, but since they are perfectly acceptable as legal tender, you can say that the property is being sold at the face value of those coins.(for example, a 1875 uncirculated $1 dollar bill can fetch as much as a $1000) so you sell a 100K property for 100 such notes and pay tax on $100 only.
he didn't state whether you pay tax when you redeem the notes for their full intrinsic value, but i guess it would work out against you!
disclaimer: this is not to be construed as advice and is provided for informational purposes only.
I think it may be a coincidence that the tax assessor put a value on your property that matches the amount you actually paid.
In OH it seems to be a common practice to put the purchase price of real estate in the deed as "for $10 and other valuable consideration."
Your tax assessor may be looking at comparable sale numbers for your neighborhood and assigning the average sale price to all similar properties in your neighborhood.
If this is the case, then the assessed value for property taxes is not influenced by your purchase price, as much as it is influenced by the sale prices of all comparable properties.
Talk with your tax assessor's office to find out exactly how property tax values are calculated. This may give you a hint for structuring your next deal.
The advantage to this strategy is simple. If you sell or decide to pay off the motgage, you realize more profit. A seller would be foolish to do what was implied without a prepayment penalty.
Quote:
On 2004-04-13 21:00, DaveT wrote:
I don't see anything illegal in paying a lower price and giving a higher interest rate on the seller financed note. The seller may object to incurring more taxable income and having a higher total tax bill.
For you the buyer, I don't see the advantage of paying a higher interest rate rate to save a couple of dollars on my property tax bill. Even with the interest deduction, I don't see you coming out ahead over the long term. Don't forget that the property tax is also a deduction.