Tax Considerations in Real Estate Conveyances

Buckingham Attorney Nicholas T. George recounts a recent matter in which he was able to help a client avoid substantial taxes in a real estate conveyance.

I thought I would share with everyone the following information.  Recently I represented a property owner of a large machining operation.  My client, the seller, was in the process of entering into a very substantial transaction where the buyer was going to purchase the property on a 12-year land installment contract.  Since the purchase price was millions of dollars more than the real estate tax value, the parties did not want to record the land installment contract since it would most likely trigger a reassessment of the property taxes costing hundreds of thousands of dollars more in real estate taxes during the term of the land contract and thereafter.  We intended to file a memorandum of land installment contract without setting forth the purchase price.

The title company (a national title company) advised us that they could not issue a title insurance policy unless the entire land installment contract was recorded, including the purchase price.  Since the buyer did not want to substantially increase the real estate tax amount, we then explored entering into a capital lease for the same term as the land installment contract under the same financial payments with the final payment being $1 for transfer of title to the property at the end of the term.  The title company advised me that they could insure for the total value of the transaction provided we recorded a memorandum of lease and the memorandum of lease did not have to reflect the total value of the transaction.  Needless to say, the buyer opted for the capital lease in order to save literally hundreds of thousands of dollars in real estate taxes.  

Contact the author of this article: Nicholas T. George, Esq.