Defer Capital Gains On Real Estate Sales

By: trycmcw
Over the past several years, many people have made big profits in the real estate boom-at least on paper, before calculating the capital gains tax owed. Now that the real estate market is leveling off, and even predicted to dip, many property owners are beginning to realize that once taxes are paid, the remaining balance is far less than they anticipated.

However, with strategic implementation of a powerful, tax-efficient selling resource, there is finally a way to sell real estate, including both primary residences and investment properties, and not pay exorbitant capital gains on real estate. The solution is called a Private Annuity Trust, an investment strategy that allows you to not only defer capital gains taxes, but to protect your remaining assets via a trust, transfer wealth to beneficiaries without taxation, and create a lifetime of income from the value in your property.

How a Private Annuity Trust Works
When an individual sells a property, he or she is responsible for paying the capital gains tax on the sale within a number of months. However, the rules are different for a Private Annuity Trust.

By transferring title of your property into a Private Annuity Trust, and having the Private Annuity Trust sell the property to the new buyer, you receive a contract that will pay you lifetime income and are thus able to defer up to 100% of your large capital gain over your entire lifetime.

Through the trust, the capital gains tax is deferred until the time that payments are made to you. Because the Trust issues a regular stream of payments over your entire lifetime, the taxes owed are also divvied up and paid in small increments over time. Additionally, the money in the trust is invested in a conservative, diversified portfolio until the moment it is paid out.

How is the Private Annuity Trust Different from a 1031 Tax-Free Real Estate Exchange?
With a 1031, you must buy another "like-kind" investment property in order to avoid paying capital gains tax. You must name the new property you plan to buy in 45 days, and the new property must cost at least as much as what you sold the old property for. If you choose not to reinvest, the government expects you to hand over the capital gains tax and depreciation recapture tax immediately; meaning you'll be hit hard right when you're ready to finally reap the fruits of your real estate investments.

There are plenty of heart wrenching stories about real estate investors who banked their entire lives on retiring with the profits from their investments, only to find that they would not be able to live the lifestyle they envisioned after the taxes were paid.

On the other hand, with the Private Annuity Trust, properties are sold through the trust and capital gains on real estate are deferred. You can use your lifetime income stream to fund your retirement, invest in another property on your own timeline, or use them any other way that you see fit, all while Trust assets have the opportunity to grow, are protected from creditors and lawsuit judgements, and taxes are deferred.

If you've spent your valuable time researching investments, fixing up properties, and managing the stress of the real estate game, you certainly don't want to lose almost a third of your profits to the federal and state government. You've most likely planned your future, your goals, and your dreams around the money you thought you'd have when you sold your properties and losing a chunk of it can be depressing, to say the least.

If you've been putting off selling your assets in an effort to avoid paying capital gains on property tax, you owe it to yourself to talk to a professional about a Private Annuity Trust and see how this strategy may work with your particular situation.
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