Joint Owners Have Different Needs
John and two friends each purchased a one-third interest in vacant land in a remote part of California 30 years ago for $50,000. The land is now being sold for $1,500,000 and John will receive, net of costs, $460,000. John’s friends want to exchange their interest in the property for a new investment using a tax-free exchange.
The new property promises to increase in value significantly over the next decade, but will only generate a 3% cash return on investment, about $1,150 per month. John is now 60 years old, retired and needs a larger monthly income to keep his current lifestyle. If John sells his portion of the property in a taxable sale he will receive about $357,500 after taxes and earn around $1,490 per month at his local bank.
CA TD Investments, Inc, (CATD) purchased John’s one-third interest in the original land on the installment basis in a structured sale under Internal Revenue Code, section 453. John will receive $2,683 in interest income each month.