The one thing I can't stress enough is the importance of proper planning before you finalize the sale of your appreciated investment property.
As I complete my series of "Interviews with the Professionals", the one thing that is common among all aspects of a strategy is to work with knowledgeable, experienced professionals who can guide you through the process of whichever tax saving strategy is most suitable for your unique situation and Do It Right!
Whether you choose a 1031 Exchange into a Tenant in Common Property, a Private Annuity Trust, a Charitable Remainder Trust, or some other vehicle, this is not a time to do it all on your own.
These are complicated and detailed entities and it's the IRS you ultimately have to answer to. I don't know about you, but they are one organization that I personally don't want scrutinizing my every tax form.
This is not the time to penny pinch. The advice of a good Tax Professional, Attorney, Qualified Intermediary, Trust Officer, Financial Advisor, and Sponsor Company representative can literally save you thousands more than the costs involved and keep your strategy from being challenged and perhaps disqualified down the road.
If either your trust or your exchange is challenged, those huge amounts of taxes you had intended to defer will be due with penalties and interest.
If you had a brain tumor, I'm sure you'd want the best professional you could find. Think of tax planning the same way. After all, it is your hard earned money at risk.
Stay tuned for the launch of my "Interviews with the Professionals" series. You'll hear the right questions to ask to make your strategy a success.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
Tuesday, December 27, 2005
Wednesday, December 21, 2005
Creative Investor Article
Wanted to post an interesting link to an article in which I am quoted. Enjoy!
http://www.thecreativeinvestor.com/commercial/Articles1067.html
It's regarding Saving Capital gains and Tenant in Common Exchanges.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
http://www.thecreativeinvestor.com/commercial/Articles1067.html
It's regarding Saving Capital gains and Tenant in Common Exchanges.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
Friday, December 16, 2005
Case Study #5 Eminent Domain
What would you think if you owned a profitable investment property for years, were counting on it for your retirement income, and one day the city it resided in sent you a notice that they were going to take it by exorcising eminent domain?
They felt they'd like to develop your land and the surrounding land as a city project! That's exactly what happened to a client of mine. To top it off, the money they offered was far below what she could sell the property for on the open market. She had to hire an attorney to negotiate a more reasonable price. This not only cost a lot of money, but during the 8 month battle, the tenant on her property left and the positive cash flow stopped. She was left with an empty building, a mortgage payment and a stack of growing debt.
It sure doesn't seem fair, but it was something totally out of her control. The challenge was to make the most of what she has left.
We were able to structure a Private Annuity Trust that will assure her a lifetime income (granted, a bit less than what she had planned on should she still own and operate the asset), enough cash out (with taxes due) to pay off the bills she is accruing while supporting her now vacant asset, and to give her a bit of a cushion and extra income for the first year.
Without researching her options, this great lady would have had to pay a huge lump sum of capital gains tax and recaptured depreciation and extra income tax. Her retirement asset would have been depleted to the point she would have to remain working well past her normal retirement age and possibly have to reduce her current lifestyle to retire at all.
We can't always control what life throws our way, but we can control how we deal with the hands we are dealt.
It is a privilege to be able to make someone's life just a little better than it was when you met them.
Happy Holidays and All the Best,
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
They felt they'd like to develop your land and the surrounding land as a city project! That's exactly what happened to a client of mine. To top it off, the money they offered was far below what she could sell the property for on the open market. She had to hire an attorney to negotiate a more reasonable price. This not only cost a lot of money, but during the 8 month battle, the tenant on her property left and the positive cash flow stopped. She was left with an empty building, a mortgage payment and a stack of growing debt.
It sure doesn't seem fair, but it was something totally out of her control. The challenge was to make the most of what she has left.
We were able to structure a Private Annuity Trust that will assure her a lifetime income (granted, a bit less than what she had planned on should she still own and operate the asset), enough cash out (with taxes due) to pay off the bills she is accruing while supporting her now vacant asset, and to give her a bit of a cushion and extra income for the first year.
Without researching her options, this great lady would have had to pay a huge lump sum of capital gains tax and recaptured depreciation and extra income tax. Her retirement asset would have been depleted to the point she would have to remain working well past her normal retirement age and possibly have to reduce her current lifestyle to retire at all.
We can't always control what life throws our way, but we can control how we deal with the hands we are dealt.
It is a privilege to be able to make someone's life just a little better than it was when you met them.
Happy Holidays and All the Best,
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
Tuesday, December 06, 2005
Holiday Wishes
Another year is fast approaching. 2006 is bringing a lot of exciting changes.
Keep checking out http://www.savegainstax.com. I am adding a qualifying questionnaire. It will allow you to find out if you are a good candidate for saving capital gains tax and only take a couple minutes to fill out.
Also look for audio snippets and a series of interviews with the experts. I am doing an interview with a tax professional, sponsor company exec, qualified intermediary and senior trust officer. You can get in on the initial calls or sign up for the replays. You will truly have information to help you make your best decision!
I am a bit overwhelmed with the technology involved, but it will truly be worth it. I am excited and look forward to a fantastic new year. I'll be sure and keep you up to date.
If there's anything you'd like to see added, drop me a line. Education is the key to informed choice.
Warmly,
Paula Straub
askpaula@savegainstax.com
Keep checking out http://www.savegainstax.com. I am adding a qualifying questionnaire. It will allow you to find out if you are a good candidate for saving capital gains tax and only take a couple minutes to fill out.
Also look for audio snippets and a series of interviews with the experts. I am doing an interview with a tax professional, sponsor company exec, qualified intermediary and senior trust officer. You can get in on the initial calls or sign up for the replays. You will truly have information to help you make your best decision!
I am a bit overwhelmed with the technology involved, but it will truly be worth it. I am excited and look forward to a fantastic new year. I'll be sure and keep you up to date.
If there's anything you'd like to see added, drop me a line. Education is the key to informed choice.
Warmly,
Paula Straub
askpaula@savegainstax.com
Monday, November 28, 2005
Holiday Savings
Thanksgiving is past and we are in the Holiday Season. I found myself out on Black Friday trying to get a bargain on a new computer system. It's all about saving money.
Why pay more if you don't have to? My main goal for all of my clients is to help you hang onto as much money as possible.
Check out the article on TIC's by Eva Rosenberg on Marketwatch.com in the tax section. Eva will be one of my guest interviews when I begin my series of "interviews with the pros" in December.
It's important to understand all the aspects of either a 1031/TIC exchange or Private Annuity Trust so that you are completely comfortable with the process and are confident that it is the solution for you and your savings of Capital Gains Tax.
There are a lot of exciting changes in process. Check back often to http://www.savegainstax.com as I will be adding additional information, web offers and personal touches. It's going to be an exciting time and of great value to you.
Happy Holidays!
Paula Straub
Why pay more if you don't have to? My main goal for all of my clients is to help you hang onto as much money as possible.
Check out the article on TIC's by Eva Rosenberg on Marketwatch.com in the tax section. Eva will be one of my guest interviews when I begin my series of "interviews with the pros" in December.
It's important to understand all the aspects of either a 1031/TIC exchange or Private Annuity Trust so that you are completely comfortable with the process and are confident that it is the solution for you and your savings of Capital Gains Tax.
There are a lot of exciting changes in process. Check back often to http://www.savegainstax.com as I will be adding additional information, web offers and personal touches. It's going to be an exciting time and of great value to you.
Happy Holidays!
Paula Straub
Wednesday, November 16, 2005
Article on General 1031 exchanges
The Skinny on 1031 Exchange: Maximizing Profits by Minimizing your Tax Liability by Dan Johnson
A 1031 exchange refers to Section 1.1031 of the Internal Revenue Code which was passed in 1990. Normally, when you sell all real and personal property, the tax code requires the payment of the Capital Gains Tax. That is to say, when you sell your office for $100,000 more than you bought it for, you must pay the gains upon those earnings. However, after the passing of a 1031 Exchange that is no longer necessarily the case.
What types of Property Qualify?
A 1031 Exchange allows sellers of some real and personal property the opportunity to avoid paying capital gains taxes (which are 15% plus state taxes) by “exchanging” their sold property for newly purchased property. However, certain restrictions apply. The most important restriction is that only business property and investment property applies. So, an exchange under a purely residential home does not qualify, whereas exchanging a property that your business has used for its office, or even one used simply for investment diversification does.
But simply selling your office isn’t enough to qualify you for a 1031 exchange. Rather, the code also requires that that you simultaneously buy a property of “like-kind.” This does not mean that if you are selling a 2000 sq. ft. office you must buy a 2000 sq. ft office. Rather, the term is interpreted very loosely to mean virtually any real estate held for productive use in a business or for investment, whether improved or unimproved can be exchanged for any other property to be used for productive business or investment purposes. So, if you sell and unimproved lot of land and purchase an improved one or visa versa, this still qualifies, just as selling industrial property and buying rental resort property does. The point here is that while “like-kind” is an important restriction, it has been interpreted so broadly as to give individuals a lot of free reign.
The Exchange
When most owners envision a 1031 exchange they envision a provision whereby they must buy and sell the two properties on the same week or even the same day. But that is not the case. A tax-deferred 1031 exchange allows up to 180 calendar days between the sale of the first property and the purchase of the second. But no matter the time between sale and purchase, a 1031 exchange is required by the Internal Revenue code to have a “qualified intermediary” to manage the exchange.
A Qualified Intermediary
The requirement of a qualified intermediary is intended primarily to prevent individuals engaged in the exchange from using the time in between the sale and purchase of property to their financial gain. Although the seller has up to 45 days to set up the intermediary, the exchange is designed so that the seller should not profit from the use of the money before the purchase of the new property is made. An intermediary serves the judicial purpose of ensuring this. But it is important to remember that the qualified intermediary charges fee for this. While these services can vary in cost depending on the additional advisory services provided by the Intermediary, individuals interested in a 1031 exchange should expect to pay somewhere in the vicinity of $500 to $700 for the first exchange and $200 to $400 for each additional property.
Dan Johnson enjoys writing about 1031 exchange. Visit http://www.1031exchangelowdown.com/ to learn more.
Article Source: http://www.articledashboard.com
A 1031 exchange refers to Section 1.1031 of the Internal Revenue Code which was passed in 1990. Normally, when you sell all real and personal property, the tax code requires the payment of the Capital Gains Tax. That is to say, when you sell your office for $100,000 more than you bought it for, you must pay the gains upon those earnings. However, after the passing of a 1031 Exchange that is no longer necessarily the case.
What types of Property Qualify?
A 1031 Exchange allows sellers of some real and personal property the opportunity to avoid paying capital gains taxes (which are 15% plus state taxes) by “exchanging” their sold property for newly purchased property. However, certain restrictions apply. The most important restriction is that only business property and investment property applies. So, an exchange under a purely residential home does not qualify, whereas exchanging a property that your business has used for its office, or even one used simply for investment diversification does.
But simply selling your office isn’t enough to qualify you for a 1031 exchange. Rather, the code also requires that that you simultaneously buy a property of “like-kind.” This does not mean that if you are selling a 2000 sq. ft. office you must buy a 2000 sq. ft office. Rather, the term is interpreted very loosely to mean virtually any real estate held for productive use in a business or for investment, whether improved or unimproved can be exchanged for any other property to be used for productive business or investment purposes. So, if you sell and unimproved lot of land and purchase an improved one or visa versa, this still qualifies, just as selling industrial property and buying rental resort property does. The point here is that while “like-kind” is an important restriction, it has been interpreted so broadly as to give individuals a lot of free reign.
The Exchange
When most owners envision a 1031 exchange they envision a provision whereby they must buy and sell the two properties on the same week or even the same day. But that is not the case. A tax-deferred 1031 exchange allows up to 180 calendar days between the sale of the first property and the purchase of the second. But no matter the time between sale and purchase, a 1031 exchange is required by the Internal Revenue code to have a “qualified intermediary” to manage the exchange.
A Qualified Intermediary
The requirement of a qualified intermediary is intended primarily to prevent individuals engaged in the exchange from using the time in between the sale and purchase of property to their financial gain. Although the seller has up to 45 days to set up the intermediary, the exchange is designed so that the seller should not profit from the use of the money before the purchase of the new property is made. An intermediary serves the judicial purpose of ensuring this. But it is important to remember that the qualified intermediary charges fee for this. While these services can vary in cost depending on the additional advisory services provided by the Intermediary, individuals interested in a 1031 exchange should expect to pay somewhere in the vicinity of $500 to $700 for the first exchange and $200 to $400 for each additional property.
Dan Johnson enjoys writing about 1031 exchange. Visit http://www.1031exchangelowdown.com/ to learn more.
Article Source: http://www.articledashboard.com
Wednesday, November 09, 2005
Case Study #5- Charitable Remainder Trust
"John Doe" enjoys a situation most of us would envy. He has something in common with people like Oprah Winfrey, Bill Gates and Warren Buffett. He has amassed an estate that will provide for him and his family comfortably for the rest of their lives. It's not exactly on par with Bill G., but secure none the less.
Mr. Doe now can plan to help others less fortunate. He can create one or more Charitable Remainder Trusts.
Let's say John has an office building that he owns outright. It will sell for 10 million dollars. If John or one of his pass through corporations sell the building, huge amounts of capital gains tax and recaptured depreciation would be immediately due on sale.
John, however, would like to give as much of the proceeds from the sale as possible to his favorite charity, The Red Cross. While he is alive, he would like to use the income to make further contributions to other worthwhile causes.
John sets up a Charitable Remainder Trust and has the trust take possession of the office building. The trust sells the building and proceeds are now earmarked for the Red Cross when John passes away. John, however (and spouse) can receive payments from the trust which amount to the interest generated by the principle for the rest of their lives. The principle received for the building is removed from John's estate and the charity will not owe capital gains tax at John's Death. John also receives a deduction on his taxes in the year the CRT is established and funded.
Since John doesn't need the money, he can donate it to whatever other causes he chooses while alive. If he is healthy, he can even use the income to purchase a life insurance policy and at his death, another charity (or beneficiary of his choice) can receive a tax free death benefit of the face value of the policy. This is also a method used by someone less wealthy than John to still leave their heirs the same amount as the principle received and do a good deed for charity as well.
The Charitable Remainder Trust does have it's place in estate planning. Usually when compared side by side to a Private Annuity Trust, the PAT wins for flexibility and additional benefits.
Paula Straub
askpaula@savegainstax.com
http://www.savegainstax.com
Mr. Doe now can plan to help others less fortunate. He can create one or more Charitable Remainder Trusts.
Let's say John has an office building that he owns outright. It will sell for 10 million dollars. If John or one of his pass through corporations sell the building, huge amounts of capital gains tax and recaptured depreciation would be immediately due on sale.
John, however, would like to give as much of the proceeds from the sale as possible to his favorite charity, The Red Cross. While he is alive, he would like to use the income to make further contributions to other worthwhile causes.
John sets up a Charitable Remainder Trust and has the trust take possession of the office building. The trust sells the building and proceeds are now earmarked for the Red Cross when John passes away. John, however (and spouse) can receive payments from the trust which amount to the interest generated by the principle for the rest of their lives. The principle received for the building is removed from John's estate and the charity will not owe capital gains tax at John's Death. John also receives a deduction on his taxes in the year the CRT is established and funded.
Since John doesn't need the money, he can donate it to whatever other causes he chooses while alive. If he is healthy, he can even use the income to purchase a life insurance policy and at his death, another charity (or beneficiary of his choice) can receive a tax free death benefit of the face value of the policy. This is also a method used by someone less wealthy than John to still leave their heirs the same amount as the principle received and do a good deed for charity as well.
The Charitable Remainder Trust does have it's place in estate planning. Usually when compared side by side to a Private Annuity Trust, the PAT wins for flexibility and additional benefits.
Paula Straub
askpaula@savegainstax.com
http://www.savegainstax.com
Friday, November 04, 2005
Q&A- Can property owned by a LLC be placed in a Private Annuity Trust?
I have received many questions about different types of property ownerships, and whether they can be split and placed in a Private Annuity Trust.
First, I must say that I am not an attorney. That is why I work with competent legal professionals who can answer individual case situations properly.
Let me give you an example of how a LLC transfer might work. Let's say Joe Black is a 25% shareholder in an LLC that owns a 1 million dollar building. The shareholders wish to sell the building and Joe does not want to pay capital gains tax at time of sale.
It is possible that Joe can sell his 25% interest in the building to a Private Annuity Trust that is created for him. The trust will become a shareholder of the LLC. Just before the sale is completed, the Trust takes ownership of the 25% share (250K) interest, and receives the cash from the sale. An "annuity" is exchanged for the cash and Joe will be guaranteed an income for the rest of his life from the trust. The exact amount of payments is based on his age, when he wishes to begin receiving payments and over how long a period of time, the amount of cash received and the current Federal Mid-Term rate.
The trust will be responsible for paying out whatever tax would have been due at the time of sale, but it will be spread out over many years.
Each case is very different, but there is often a solution that will save a great deal of money. Why pay huge sums upfront if you don't have to?
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
First, I must say that I am not an attorney. That is why I work with competent legal professionals who can answer individual case situations properly.
Let me give you an example of how a LLC transfer might work. Let's say Joe Black is a 25% shareholder in an LLC that owns a 1 million dollar building. The shareholders wish to sell the building and Joe does not want to pay capital gains tax at time of sale.
It is possible that Joe can sell his 25% interest in the building to a Private Annuity Trust that is created for him. The trust will become a shareholder of the LLC. Just before the sale is completed, the Trust takes ownership of the 25% share (250K) interest, and receives the cash from the sale. An "annuity" is exchanged for the cash and Joe will be guaranteed an income for the rest of his life from the trust. The exact amount of payments is based on his age, when he wishes to begin receiving payments and over how long a period of time, the amount of cash received and the current Federal Mid-Term rate.
The trust will be responsible for paying out whatever tax would have been due at the time of sale, but it will be spread out over many years.
Each case is very different, but there is often a solution that will save a great deal of money. Why pay huge sums upfront if you don't have to?
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
Monday, October 31, 2005
Q&A Can my primary residence be placed in a PAT?
I had a conversation with a 70 year old woman. She and her husband had purchased their home in 1980 for 100K. Today it will sell for somewhere in the neighborhood of 800K. Her husband passed on several years ago and the house has become too big for her. Since she qualified for a 250K capital gain exclusion, she would be left with paying capital gains on 450K. Here in California, that would be somewhere in the neighborhood of 109K. For a 70 year old retired widow, she would perhaps never be able to save 109K in the remainder of her lifetime. It's a big deal.
She has no debt on her home.
A very viable option we are exploring is to put the entire 800K in a Private Annuity Trust upon sale. We haven't crunched all the numbers yet, but she would begin receiving monthly payments of probably in excess of 6K/mo for the rest of her life.
With this income, she can rent a place just about anywhere she desires, and not have to worry about upkeep, property tax, or replacing expensive items like roofs, appliances, pipes, etc. She can sock away any extra monies for trips, gifts, or future medical care. She can have a good emergency fund as a cushion against whatever life may hold. A good long term care policy is another consideration to protect the rest of her savings from depletion in case of serious illness.
She has one child, and two grandchildren. Any monies left in the trust on her death will pass to them.
This is a far superior option to something like a reverse mortgage.
With proper planning, she will have peace of mind and an income stream most retirees could only hope for.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
She has no debt on her home.
A very viable option we are exploring is to put the entire 800K in a Private Annuity Trust upon sale. We haven't crunched all the numbers yet, but she would begin receiving monthly payments of probably in excess of 6K/mo for the rest of her life.
With this income, she can rent a place just about anywhere she desires, and not have to worry about upkeep, property tax, or replacing expensive items like roofs, appliances, pipes, etc. She can sock away any extra monies for trips, gifts, or future medical care. She can have a good emergency fund as a cushion against whatever life may hold. A good long term care policy is another consideration to protect the rest of her savings from depletion in case of serious illness.
She has one child, and two grandchildren. Any monies left in the trust on her death will pass to them.
This is a far superior option to something like a reverse mortgage.
With proper planning, she will have peace of mind and an income stream most retirees could only hope for.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
Wednesday, October 26, 2005
Why You should be on the next Teleclass
I have a great website which invites anyone who does not want to pay capital gains tax on the sale of their investment property to a teleclass in which they learn their options.
There is also a question box where you can ask questions and get a direct response.
Those who have done either are incredibly glad they did because they have walked away with valuable information on how they can save capital gains tax and let their gains work for them for the rest of their lives.
There is nothing more important than knowledge. It may benefit you now or later, but it always benefits.
When you invest in property that gains value, you have every right to keep as much of your proceeds as possible.
Take an hour of your time and find out if either a 1031/TIC exchange or a Private Annuity Trust makes sense for your unique situation.
Join me on the next call. It'll be the best hour you have ever spent. If you can't make the call, ask a question in the question box. I get them all directly and guarantee you a fast, personal response.
Paula Straub
http://www.savegainstax.com
There is also a question box where you can ask questions and get a direct response.
Those who have done either are incredibly glad they did because they have walked away with valuable information on how they can save capital gains tax and let their gains work for them for the rest of their lives.
There is nothing more important than knowledge. It may benefit you now or later, but it always benefits.
When you invest in property that gains value, you have every right to keep as much of your proceeds as possible.
Take an hour of your time and find out if either a 1031/TIC exchange or a Private Annuity Trust makes sense for your unique situation.
Join me on the next call. It'll be the best hour you have ever spent. If you can't make the call, ask a question in the question box. I get them all directly and guarantee you a fast, personal response.
Paula Straub
http://www.savegainstax.com
Friday, October 21, 2005
Case Study #4 Who can't benefit from a TIC exchange?
I really do want to help everyone hang onto their capital gains.
However, sometimes things just don't work out.
Recently, I had a client that had a rental he was selling for $410,000. He had paid 200K 3 years ago. He really wanted to get out of the landlord business, and sounded like a good candidate for a 1031 Exchange into a Tenant in Common Property. He thought the whole concept sounded wonderful.
Indeed it would have been, except for a few minor details. He had already done a 1031 exchange into his current rental property. His adjusted basis was only 49K. In addition, he had borrowed against the property and had a mortgage of 300K.
After cost of sale expenses, he only had about 90K equity. That means, he had a bit over 75% debt. There are virtually no good TIC properties that have that kind of debt to equity ratios.
My client would have had to bring about 130K in cash into the exchange to make it work. The numbers actually worked out ok if he took out an equity line on his residence, but it was not something he wanted to do.
A Private Annuity Trust didn't make sense either, as he would have had to pay too many taxes on his mortgage repayment (debt over basis) to justify the costs and benefits.
So, he is in the market to purchase yet another rental property and be a landlord for a while longer until his equity increases to the point where either capital gains saving strategy makes sense for him.
At least he knows now how to plan for his future gains.
Paula Straub
http://www.savegainstax.com
However, sometimes things just don't work out.
Recently, I had a client that had a rental he was selling for $410,000. He had paid 200K 3 years ago. He really wanted to get out of the landlord business, and sounded like a good candidate for a 1031 Exchange into a Tenant in Common Property. He thought the whole concept sounded wonderful.
Indeed it would have been, except for a few minor details. He had already done a 1031 exchange into his current rental property. His adjusted basis was only 49K. In addition, he had borrowed against the property and had a mortgage of 300K.
After cost of sale expenses, he only had about 90K equity. That means, he had a bit over 75% debt. There are virtually no good TIC properties that have that kind of debt to equity ratios.
My client would have had to bring about 130K in cash into the exchange to make it work. The numbers actually worked out ok if he took out an equity line on his residence, but it was not something he wanted to do.
A Private Annuity Trust didn't make sense either, as he would have had to pay too many taxes on his mortgage repayment (debt over basis) to justify the costs and benefits.
So, he is in the market to purchase yet another rental property and be a landlord for a while longer until his equity increases to the point where either capital gains saving strategy makes sense for him.
At least he knows now how to plan for his future gains.
Paula Straub
http://www.savegainstax.com
Monday, October 17, 2005
Article from Interview with Paula Straub
Secrets to Deferring Capital Gains Tax
By Sarah Vaughn
Are you tired of the hassles of being a hands-on landlord, but afraid of being nailed by Capital Gains Tax if you sell your current income property?
There is a way out.
It's called a 1031/Tenant In Common (TIC) Exchange , and financial advisor Paula Straub (www.savegainstax.com), who specializes in this kind of deferred capital gains tax investment, says it is an attractive option for owners of investment property who are looking to tap into their equity without having nearly 30% of their profits swallowed by capital gains tax.
"The 1031 Property Exchange program is specifically designed for commercial property owners who have highly appreciated investment properties, " Straub says.
Under the regulations of the 1031/TIC Exchange program, an investment property owner can "exchange" their current commercial property for a "like-kind" investment property of equal or greater value, deferring the payment of capital gains tax and maximizing their profits. A relatively new tax program, the 1031/TIC Exchange program wasn't sanctioned until 2002.
"Many commercial property owners who might qualify for the 1031 deferred tax program don't even know about it" Straub remarks. And she's working hard to let investment property owners with highly appreciated real estate know that they have options.
An experienced financial planner, Straub works as a conduit of information for her clients. For qualified commercial property owners, there are even more benefits to the 1031/TIC Tax Deferred Exchange program.
"You'll have a monthly income stream from an investment property, without all of the hassles that go along with being a hands-on landlord, " Straub advises. "You won't have to deal with the stresses of rent collection every month or after hours plumbing problems. And your new investment property will pass directly to your heirs. Under current tax law, your beneficiaries won't have to pay any capital gains tax. They will receive the property at the stepped-up basis."
Straub understands all of the subtle nuances of the 1031/TIC Exchange program. Her goal is to educate her clients using clear and concise language . She points out that there are three very important elements of this deferred capital gains tax transaction that you don't want to overlook.
"You need an unbiased third party intermediary, a lawyer or qualified CPA, who will handle all of the paperwork for you," Straub says. "You'll also need a quality 1031 Esponsor Sponser Company with access to a portfolio of grade A commercial real estate, and your new commercial investment will have to be serviced by a reliable and experienced property management company."
Working as a liaison between these three companies, Straub advises her clients how they can make the best investment possible. She is one of the few financial advisors who provides over-the-phone consultations about the 1031/TIC Exchange program. A nationwide program, you can learn about this unique investment opportunity from Straub without leaving the comfort of your home.
No one knows the 1031 Deferred Tax program better than Straub, and to many investment property owners, this Exchange Property program may sound like a dream come true. In truth, a 1031/TIC transaction is fairly complicated, and Straub warns that doing it on your own could lead to some unexpected and unsatisfactory results.
"On your own, you can find yourself involved with a 1031/TIC sponser company that doesn't deal with quality real estate investments."
She advises her clients to work with 1031 Investment Exchange companies with solid track records. An investment company that urges an investment in inferior properties, or properties that need a lot of work is only one of the many pitfalls that investors want to avoid.
"Strip malls and apartments that have huge tenant turn-over and require constant maintenance may be a bad investment. You want a 1031/TIC sponser company that handles quality office buildings that are leasing office space to long-term corporate clients."
Involvement with unreliable property management companies that don't service the investment property to the highest possible standards can be another problem for commercial property owners interested in the 1031/TIC Exchange program. Poorly managed properties make investors a target for lawsuits from unhappy tenants, and results in the eventual loss of equity as the building may depreciate instead of increasing in value.
Straub also advises her clients not to use a family attorney or CPA as a qualified intermediary . She connects her clients to qualified third parties who are experienced with the 1031/TIC Exchange program and will handle the transaction according to the strict IRS guidelines.
"There are many deadlines that must be adhered to when you're making this kind of property exchange," Straub says. "If you don't meet them, you'll find yourself paying out of your own pocket the taxes you are trying to defer."
For investment property owners who are interested in the 1031/TIC Exchange program, working with an experienced financial advisor like Paula Straub is the only way to avoid all of the pitfalls of this complicated transaction.
"I've done the research. I know how to find the value. I know which investment companies you should be working with and who to avoid" -- which should give any investor considering the option of the 1031/TIC Exchange program a lot of peace of mind.
Another valuable concept for capital gains deferral is the Private Annuity Trust, according to Paula. Different situations call for different solutions. This will be covered in a follow-up interview.
For more information about the 1031/TIC (Tenant in Common) Exchange program, consult financial advisor, Paula Straub, at http://www.savegainstax.com or send her an email at askpaula@savegainstax.com.
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By Sarah Vaughn
Are you tired of the hassles of being a hands-on landlord, but afraid of being nailed by Capital Gains Tax if you sell your current income property?
There is a way out.
It's called a 1031/Tenant In Common (TIC) Exchange , and financial advisor Paula Straub (www.savegainstax.com), who specializes in this kind of deferred capital gains tax investment, says it is an attractive option for owners of investment property who are looking to tap into their equity without having nearly 30% of their profits swallowed by capital gains tax.
"The 1031 Property Exchange program is specifically designed for commercial property owners who have highly appreciated investment properties, " Straub says.
Under the regulations of the 1031/TIC Exchange program, an investment property owner can "exchange" their current commercial property for a "like-kind" investment property of equal or greater value, deferring the payment of capital gains tax and maximizing their profits. A relatively new tax program, the 1031/TIC Exchange program wasn't sanctioned until 2002.
"Many commercial property owners who might qualify for the 1031 deferred tax program don't even know about it" Straub remarks. And she's working hard to let investment property owners with highly appreciated real estate know that they have options.
An experienced financial planner, Straub works as a conduit of information for her clients. For qualified commercial property owners, there are even more benefits to the 1031/TIC Tax Deferred Exchange program.
"You'll have a monthly income stream from an investment property, without all of the hassles that go along with being a hands-on landlord, " Straub advises. "You won't have to deal with the stresses of rent collection every month or after hours plumbing problems. And your new investment property will pass directly to your heirs. Under current tax law, your beneficiaries won't have to pay any capital gains tax. They will receive the property at the stepped-up basis."
Straub understands all of the subtle nuances of the 1031/TIC Exchange program. Her goal is to educate her clients using clear and concise language . She points out that there are three very important elements of this deferred capital gains tax transaction that you don't want to overlook.
"You need an unbiased third party intermediary, a lawyer or qualified CPA, who will handle all of the paperwork for you," Straub says. "You'll also need a quality 1031 Esponsor Sponser Company with access to a portfolio of grade A commercial real estate, and your new commercial investment will have to be serviced by a reliable and experienced property management company."
Working as a liaison between these three companies, Straub advises her clients how they can make the best investment possible. She is one of the few financial advisors who provides over-the-phone consultations about the 1031/TIC Exchange program. A nationwide program, you can learn about this unique investment opportunity from Straub without leaving the comfort of your home.
No one knows the 1031 Deferred Tax program better than Straub, and to many investment property owners, this Exchange Property program may sound like a dream come true. In truth, a 1031/TIC transaction is fairly complicated, and Straub warns that doing it on your own could lead to some unexpected and unsatisfactory results.
"On your own, you can find yourself involved with a 1031/TIC sponser company that doesn't deal with quality real estate investments."
She advises her clients to work with 1031 Investment Exchange companies with solid track records. An investment company that urges an investment in inferior properties, or properties that need a lot of work is only one of the many pitfalls that investors want to avoid.
"Strip malls and apartments that have huge tenant turn-over and require constant maintenance may be a bad investment. You want a 1031/TIC sponser company that handles quality office buildings that are leasing office space to long-term corporate clients."
Involvement with unreliable property management companies that don't service the investment property to the highest possible standards can be another problem for commercial property owners interested in the 1031/TIC Exchange program. Poorly managed properties make investors a target for lawsuits from unhappy tenants, and results in the eventual loss of equity as the building may depreciate instead of increasing in value.
Straub also advises her clients not to use a family attorney or CPA as a qualified intermediary . She connects her clients to qualified third parties who are experienced with the 1031/TIC Exchange program and will handle the transaction according to the strict IRS guidelines.
"There are many deadlines that must be adhered to when you're making this kind of property exchange," Straub says. "If you don't meet them, you'll find yourself paying out of your own pocket the taxes you are trying to defer."
For investment property owners who are interested in the 1031/TIC Exchange program, working with an experienced financial advisor like Paula Straub is the only way to avoid all of the pitfalls of this complicated transaction.
"I've done the research. I know how to find the value. I know which investment companies you should be working with and who to avoid" -- which should give any investor considering the option of the 1031/TIC Exchange program a lot of peace of mind.
Another valuable concept for capital gains deferral is the Private Annuity Trust, according to Paula. Different situations call for different solutions. This will be covered in a follow-up interview.
For more information about the 1031/TIC (Tenant in Common) Exchange program, consult financial advisor, Paula Straub, at http://www.savegainstax.com or send her an email at askpaula@savegainstax.com.
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Wednesday, October 12, 2005
Private Annuity Trusts- Supercharge your Retirement
You have made some great investments in Real Estate or a Stock Portfolio. Congratulations! Now you are ready to retire on your gains. But wait. To benefit from your investment appreciation, you're going to have to sell some or all of those assets.
If you sell your investment property, you will need to pay capital gains tax to the Federal Government, State, and you will also pay recaptured depreciation. If you're in California, add another 3 1/3% in withholding. That's a huge chunk of change, and a big blow to your savings.
If you sell your stocks, you'll be giving up at least 15% to capital gains. There is also no guarantee that the long term capital gains rate will remain at 15% forever. It could increase down the road.
How can you start receiving income but not get hit with huge amounts of tax?
For real property, there is a 1031 exchange into a tenant in common property. This works well for younger investors that don't want to manage property anymore, but still enjoy the benefits of real estate ownership. This is a subject covered in many of my previous articles.
There is another powerful concept. It's called a Private Annuity Trust. These trusts have been around since 1930, but until the last few years have only been done for Estate Planning purposes. The Private Annuity Trust also works extremely well for Retirement Planning. It is fairly complex to set up and administrate, so many financial planners, real estate brokers, CPAs and Attorneys still don't know much about them.
The procedure is basically this.
1. A Private Annuity Trust is established. You, the seller becomes the annuitant.
2. A fair market appraisal is done to determine value.
3. The seller can negotiate a sale price at the appraised value.
4. The property is transferred to the trust and the trust is now the seller of the property and retains the proceeds.
5. The proceeds are invested by trustees (not the annuitant) and an arrangement is made to pay the annuitant (and perhaps their spouse) in monthly payments for the remainder of their lives. The capital gains tax is spread out over the course of your lifetime. If you pass away before your estimated average calculated life span, the remainder of the assets pass to the beneficiaries. The balance will be free of Estate Tax, Gift Tax, Generation skipping tax, and Transfer tax. Any capital gains tax still due will be paid before disbursement.
6. Other properties or stocks can be added to the trust at a later time, and recieve the same benefits.
As an example, let's say you have a million dollar gain on a property. You might very well owe 350K in taxes. With a Private Annuity Trust, all one million goes to work for you, and you can receive montyly income for the rest of your life. The exact amount is determined by your age and the time you choose to begin receiving your payments. You have the option to defer receiving payments until the age of 70 1/2. This allows the assets to grow tax deferred, and allows for greater income in the future.
These assets are removed from your estate, as the trust now owns them and the annuitant relinquishes control over how they are invested.
Setting up a Private Annuity Trust can definitely give a turbo boost to your retirement bottom line. Ask yourself, would you rather give a "gift" to the government in a big lump sum, or would you like to pay in small chunks and have the bulk of your profits working for you and earning compounded interest for years to come?
Find out if you qualify to save thousands in capital gains tax. Ask Paula a question and be on the next information packed teleconference. Sign up right now at http://www.savegainstax.com
If you sell your investment property, you will need to pay capital gains tax to the Federal Government, State, and you will also pay recaptured depreciation. If you're in California, add another 3 1/3% in withholding. That's a huge chunk of change, and a big blow to your savings.
If you sell your stocks, you'll be giving up at least 15% to capital gains. There is also no guarantee that the long term capital gains rate will remain at 15% forever. It could increase down the road.
How can you start receiving income but not get hit with huge amounts of tax?
For real property, there is a 1031 exchange into a tenant in common property. This works well for younger investors that don't want to manage property anymore, but still enjoy the benefits of real estate ownership. This is a subject covered in many of my previous articles.
There is another powerful concept. It's called a Private Annuity Trust. These trusts have been around since 1930, but until the last few years have only been done for Estate Planning purposes. The Private Annuity Trust also works extremely well for Retirement Planning. It is fairly complex to set up and administrate, so many financial planners, real estate brokers, CPAs and Attorneys still don't know much about them.
The procedure is basically this.
1. A Private Annuity Trust is established. You, the seller becomes the annuitant.
2. A fair market appraisal is done to determine value.
3. The seller can negotiate a sale price at the appraised value.
4. The property is transferred to the trust and the trust is now the seller of the property and retains the proceeds.
5. The proceeds are invested by trustees (not the annuitant) and an arrangement is made to pay the annuitant (and perhaps their spouse) in monthly payments for the remainder of their lives. The capital gains tax is spread out over the course of your lifetime. If you pass away before your estimated average calculated life span, the remainder of the assets pass to the beneficiaries. The balance will be free of Estate Tax, Gift Tax, Generation skipping tax, and Transfer tax. Any capital gains tax still due will be paid before disbursement.
6. Other properties or stocks can be added to the trust at a later time, and recieve the same benefits.
As an example, let's say you have a million dollar gain on a property. You might very well owe 350K in taxes. With a Private Annuity Trust, all one million goes to work for you, and you can receive montyly income for the rest of your life. The exact amount is determined by your age and the time you choose to begin receiving your payments. You have the option to defer receiving payments until the age of 70 1/2. This allows the assets to grow tax deferred, and allows for greater income in the future.
These assets are removed from your estate, as the trust now owns them and the annuitant relinquishes control over how they are invested.
Setting up a Private Annuity Trust can definitely give a turbo boost to your retirement bottom line. Ask yourself, would you rather give a "gift" to the government in a big lump sum, or would you like to pay in small chunks and have the bulk of your profits working for you and earning compounded interest for years to come?
Find out if you qualify to save thousands in capital gains tax. Ask Paula a question and be on the next information packed teleconference. Sign up right now at http://www.savegainstax.com
Tuesday, October 11, 2005
Case Study #3 Split TIC and PAT
No two cases are ever quite the same. Some people I can help, and some people I truly can't. Half the fun is in decided who is who.
Take this case. It was a 67 year old lady, a widower. She does have children and grandchildren, but also has to look out for herself.
She has a primary residence, a rental condo and a second mountain home which has been rented for the last few years.
She has gotten to the point where she can use some extra income, and does not want the hassles of property management.
She purchased the mountain home in 1994 for 200K. It now is worth 790K. She owns it outright. She wants to sell, but found out she would owe 100K in capital gains tax. It's hard to give up that kind of money to Uncle Sam.
After going over her needs and options, the best choice for her will be to split the proceeds between a 1031 exchange into the tenant in common property and a private annuity trust.
Both will provide her a monthly income. She will being taking payments immediately from the PAT, and will slowly deplete that asset over time. The other half, she will also receive an income from (about 2K/mo) and that income will increase over time. She can later do another exchange and continue to increase her income. The TIC will pass to her heirs at the stepped up basis. She can always add that asset to the PAT at a later time, if the situation warranted it.
She is now very diversified, and she has a stable income which allows her to live very comfortably. Part of her assets are removed from her estate, so her heirs will not be faced with large amounts of estate taxes at her passing.
Bottom line, she has that 100K working in her favor for years to come.
Paula Straub
http://www.savegainstax.com
Take this case. It was a 67 year old lady, a widower. She does have children and grandchildren, but also has to look out for herself.
She has a primary residence, a rental condo and a second mountain home which has been rented for the last few years.
She has gotten to the point where she can use some extra income, and does not want the hassles of property management.
She purchased the mountain home in 1994 for 200K. It now is worth 790K. She owns it outright. She wants to sell, but found out she would owe 100K in capital gains tax. It's hard to give up that kind of money to Uncle Sam.
After going over her needs and options, the best choice for her will be to split the proceeds between a 1031 exchange into the tenant in common property and a private annuity trust.
Both will provide her a monthly income. She will being taking payments immediately from the PAT, and will slowly deplete that asset over time. The other half, she will also receive an income from (about 2K/mo) and that income will increase over time. She can later do another exchange and continue to increase her income. The TIC will pass to her heirs at the stepped up basis. She can always add that asset to the PAT at a later time, if the situation warranted it.
She is now very diversified, and she has a stable income which allows her to live very comfortably. Part of her assets are removed from her estate, so her heirs will not be faced with large amounts of estate taxes at her passing.
Bottom line, she has that 100K working in her favor for years to come.
Paula Straub
http://www.savegainstax.com
Case Study #3- Split TIC and PAT
No two cases are ever quite the same. Some people I can help, and some people I truly can't. Half the fun is in decided who is who.
Take this case. It was a 67 year old lady, a widower. She does have children and grandchildren, but also has to look out for herself.
She has a primary residence, a rental condo and a second mountain home which has been rented for the last few years.
She has gotten to the point where she can use some extra income, and does not want the hassles of property management.
She purchased the mountain home in 1994 for 200K. It now is worth 790K. She owns it outright. She wants to sell, but found out she would owe 100K in capital gains tax. It's hard to give up that kind of money to Uncle Sam.
After going over her needs and options, the best choice for her will be to split the proceeds between a 1031 exchange into the tenant in common property and a private annuity trust.
Both will provide her a monthly income. She will being taking payments immediately from the PAT, and will slowly deplete that asset over time. The other half, she will also receive an income from (about 2K/mo) and that income will increase over time. She can later do another exchange and continue to increase her income. The TIC will pass to her heirs at the stepped up basis. She can always add that asset to the PAT at a later time, if the situation warranted it.
She is now very diversified, and she has a stable income which allows her to live very comfortably. Part of her assets are removed from her estate, so her heirs will not be faced with large amounts of estate taxes at her passing.
Bottom line, she has that 100K working in her favor for years to come.
Paula Straub
http://www.savegainstax.com
Take this case. It was a 67 year old lady, a widower. She does have children and grandchildren, but also has to look out for herself.
She has a primary residence, a rental condo and a second mountain home which has been rented for the last few years.
She has gotten to the point where she can use some extra income, and does not want the hassles of property management.
She purchased the mountain home in 1994 for 200K. It now is worth 790K. She owns it outright. She wants to sell, but found out she would owe 100K in capital gains tax. It's hard to give up that kind of money to Uncle Sam.
After going over her needs and options, the best choice for her will be to split the proceeds between a 1031 exchange into the tenant in common property and a private annuity trust.
Both will provide her a monthly income. She will being taking payments immediately from the PAT, and will slowly deplete that asset over time. The other half, she will also receive an income from (about 2K/mo) and that income will increase over time. She can later do another exchange and continue to increase her income. The TIC will pass to her heirs at the stepped up basis. She can always add that asset to the PAT at a later time, if the situation warranted it.
She is now very diversified, and she has a stable income which allows her to live very comfortably. Part of her assets are removed from her estate, so her heirs will not be faced with large amounts of estate taxes at her passing.
Bottom line, she has that 100K working in her favor for years to come.
Paula Straub
http://www.savegainstax.com
Friday, October 07, 2005
Case Study #2 - Private Annuity Trust
Usually, for appreciated real estate, I find the 1031 Exchange into a Tenant in Common Property carries the most advantages. But, there are some cases where the Private Annuity Trust is the way to go.
Ken and Nancy sold their apartment complex a year ago and purchased another. At that time, they paid no capital gains tax because they did a 1031 exchange for like kind property.
Ken began having health problems, and no longer wanted the management hassles of running a complex. Ken and Nancy have other real estate and didn't want to do another 1031 exchange. Since they need to slow down and enjoy life more, they wanted a larger income. They have no heirs.
Ken and Nancy formed a Private Annuity Trust and had transferred the complex into the trust after they'd found a buyer. The trust sold the property, and both Ken and Nancy will be receiving an income from that property for the rest of their lives. They will be paying small amounts of capital gains from each payment over the years, but most of that money (1 million dollars)will be working for them for years to come. They pay no penalties or extra interest, so the gains paid out over time are only the ones realized at the time of sale. Any monies left in the trust at their death will go to their favorite charity. If they'd had heirs, this money would have passed to them free of estate tax, gift tax, generation skipping tax, and transfer tax.
Ken can take it easy and hopefully live a less stressful and pleasant life. Nancy is grateful to have a steady income, a good portion of which is tax free, as it is a return of basis.
In this case, the Private Annuity Trust was the perfect solution.
Stayed tuned for the next case study coming soon.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
Ken and Nancy sold their apartment complex a year ago and purchased another. At that time, they paid no capital gains tax because they did a 1031 exchange for like kind property.
Ken began having health problems, and no longer wanted the management hassles of running a complex. Ken and Nancy have other real estate and didn't want to do another 1031 exchange. Since they need to slow down and enjoy life more, they wanted a larger income. They have no heirs.
Ken and Nancy formed a Private Annuity Trust and had transferred the complex into the trust after they'd found a buyer. The trust sold the property, and both Ken and Nancy will be receiving an income from that property for the rest of their lives. They will be paying small amounts of capital gains from each payment over the years, but most of that money (1 million dollars)will be working for them for years to come. They pay no penalties or extra interest, so the gains paid out over time are only the ones realized at the time of sale. Any monies left in the trust at their death will go to their favorite charity. If they'd had heirs, this money would have passed to them free of estate tax, gift tax, generation skipping tax, and transfer tax.
Ken can take it easy and hopefully live a less stressful and pleasant life. Nancy is grateful to have a steady income, a good portion of which is tax free, as it is a return of basis.
In this case, the Private Annuity Trust was the perfect solution.
Stayed tuned for the next case study coming soon.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
Monday, October 03, 2005
Case Study #1 1031/TIC exchange success
I've decided to start posting some case studies where clients have successfully saved thousands in capital gains tax. Hopefully, one of these will hit home and be similar enough to your situation so that you can save plenty yourself.
The names have been changed to protect client confidentiality.
Mary had 3 rental properties that she purchased many years ago. They weren't in the best locations and had become negative cash flows. She was having to put in several hundred dollars of her own money each month to cover costs.
Mary had had trouble with renters trashing the property and not paying rent on time. She had thought a lot about selling, but didn't want to see about one third of her gains disappear.
One day unexpectedly, Mary lost her job. She got behind in bills. She knew she had to do something fast. Mary found out about the 1031 exchange into a tenant in common property. It meant she could get an income, still own property, but not have the property management hassles. She sold one property below market value as a cash sale, because she needed money fast. With her equity of 200K she exchanged for a TIC. The entire process took only a few weeks. She began receiving $1000.00/mo.
Mary was able to sell the other two properties at market rate. The additional 400K equity brings in another $2000.00/mo. A good portion of that is non-taxable income. Mary has all of her capital gains working for her. She paid no capital gains tax or recaptured depreciation.
Mary is actually bringing home more money now than she did from her job. She is taking her time and deciding what she really wants to do with the rest of her life. She has enough passive income to cover her personal expenses. She still is a real estate owner, and her assets will continue to appreciate over time. So will her income.
Mary is extremely happy and grateful. Her life has changed permanently for the better.
If Mary's situation is similar to your own, perhaps now is the time for you to look into a 1031 exchange into a tenant in common property. I can help you determine if this is a good choice.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
The names have been changed to protect client confidentiality.
Mary had 3 rental properties that she purchased many years ago. They weren't in the best locations and had become negative cash flows. She was having to put in several hundred dollars of her own money each month to cover costs.
Mary had had trouble with renters trashing the property and not paying rent on time. She had thought a lot about selling, but didn't want to see about one third of her gains disappear.
One day unexpectedly, Mary lost her job. She got behind in bills. She knew she had to do something fast. Mary found out about the 1031 exchange into a tenant in common property. It meant she could get an income, still own property, but not have the property management hassles. She sold one property below market value as a cash sale, because she needed money fast. With her equity of 200K she exchanged for a TIC. The entire process took only a few weeks. She began receiving $1000.00/mo.
Mary was able to sell the other two properties at market rate. The additional 400K equity brings in another $2000.00/mo. A good portion of that is non-taxable income. Mary has all of her capital gains working for her. She paid no capital gains tax or recaptured depreciation.
Mary is actually bringing home more money now than she did from her job. She is taking her time and deciding what she really wants to do with the rest of her life. She has enough passive income to cover her personal expenses. She still is a real estate owner, and her assets will continue to appreciate over time. So will her income.
Mary is extremely happy and grateful. Her life has changed permanently for the better.
If Mary's situation is similar to your own, perhaps now is the time for you to look into a 1031 exchange into a tenant in common property. I can help you determine if this is a good choice.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
Monday, September 26, 2005
Private Annuity Trust or Charitable Remainder Trust?
I have found there are more people (even professionals) who know more about Charitable Remainder Trusts than Private Annuity Trusts.
So why one vs. another?
It really depends on your need for your money or income. Both defer or eliminate capital gains tax. But do you want the use of all your money during your lifetime, or will just the interest that the money makes suffice? Do you want to leave a legacy to your heirs or your favorite Charity?
The best time to create either option is when you have a highly appreciated asset such as real estate. If you sell outright, you will lose a great portion of your appreciation to capital gains tax. Maybe up to one third.
A Charitable Remainder Trust will provide the following:
1. You will pass your asset capital gains free to your favorite charity.
2. You can get whatever gains the trust makes during your lifetime as payments.
3. If you are healthy, the trust can purchase a life insurance policy on you which will pay your beneficiary a tax free benefit to replace the money going to charity instead of your heirs.
4. A good choice if you want to separate assets from your estate and you don't need the money from the asset.
A Private Annuity Trust will provide the following:
1. You will defer capital gains tax over the rest of your life and pay in smaller installments once you begin receiving payments.
2. You can defer taking income until age 70 1/2. This will allow your gains to work for you over time while continuing the deferral of taxes.
3. It will provide you with a larger income during retirement.
4. Your beneficiaries will receive any funds remaining in your trust free of estate tax, transfer tax, gift tax, and generation skipping tax.
5. You can still list a charity as beneficiary if you wish.
Both are powerful concepts. Which one is best depends on your own personal needs.
If you would like help deciding which is a better fit, give me a call or send me an email.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
(760)917-0858
So why one vs. another?
It really depends on your need for your money or income. Both defer or eliminate capital gains tax. But do you want the use of all your money during your lifetime, or will just the interest that the money makes suffice? Do you want to leave a legacy to your heirs or your favorite Charity?
The best time to create either option is when you have a highly appreciated asset such as real estate. If you sell outright, you will lose a great portion of your appreciation to capital gains tax. Maybe up to one third.
A Charitable Remainder Trust will provide the following:
1. You will pass your asset capital gains free to your favorite charity.
2. You can get whatever gains the trust makes during your lifetime as payments.
3. If you are healthy, the trust can purchase a life insurance policy on you which will pay your beneficiary a tax free benefit to replace the money going to charity instead of your heirs.
4. A good choice if you want to separate assets from your estate and you don't need the money from the asset.
A Private Annuity Trust will provide the following:
1. You will defer capital gains tax over the rest of your life and pay in smaller installments once you begin receiving payments.
2. You can defer taking income until age 70 1/2. This will allow your gains to work for you over time while continuing the deferral of taxes.
3. It will provide you with a larger income during retirement.
4. Your beneficiaries will receive any funds remaining in your trust free of estate tax, transfer tax, gift tax, and generation skipping tax.
5. You can still list a charity as beneficiary if you wish.
Both are powerful concepts. Which one is best depends on your own personal needs.
If you would like help deciding which is a better fit, give me a call or send me an email.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
(760)917-0858
Tuesday, September 20, 2005
Private Annuity Trusts
In most cases, a 1031 exchange into a tenant in common property benefits an investment property owner in many ways.
1. Provides an income stream
2. Defers all capital gains taxes
3. Relieves the seller of property management headaches
4. Gives benefits of real estate ownership (appreciation)
5. Passes asset to heirs capital gains tax free
6. Retain control of asset
However, there is another vehicle that can be just as powerful under the right circumstances. This is a Private Annuity Trust.
If the owner has a very highly appreciated property, is close to or in retirement, and needs a higher income, or just needs to separate some property from his/her estate, this may be the key.
A PAT (Private Annuity Trust) can be established, the property transferred to the trust, the trust sells the property, and the cash from sale is now put into an "annuity" and the seller becomes the annuitant. The annuitant will get payments from the trust over his life time and perhaps the lifetime of his spouse. He will pay capital gains tax spread out over a number of years, but gets to benefit from the compounded growth of all of his asset over time. He may defer receiving payments until age 70 1/2 if he so desires. Any assets remaining at death do pass to his beneficiaries after all the remainder of taxes due are paid by the trust.
Appreciated stocks can also be placed in a PAT and the capital gains spread out over years. Additional assets can be placed in the trust at later times.
I will be blogging more on specific cases where either the 1031/TIC or PAT benefits a client the most. Both are very powerful and superior retirement planning concepts.
Paula Straub
askpaula@savegainstax.com
1. Provides an income stream
2. Defers all capital gains taxes
3. Relieves the seller of property management headaches
4. Gives benefits of real estate ownership (appreciation)
5. Passes asset to heirs capital gains tax free
6. Retain control of asset
However, there is another vehicle that can be just as powerful under the right circumstances. This is a Private Annuity Trust.
If the owner has a very highly appreciated property, is close to or in retirement, and needs a higher income, or just needs to separate some property from his/her estate, this may be the key.
A PAT (Private Annuity Trust) can be established, the property transferred to the trust, the trust sells the property, and the cash from sale is now put into an "annuity" and the seller becomes the annuitant. The annuitant will get payments from the trust over his life time and perhaps the lifetime of his spouse. He will pay capital gains tax spread out over a number of years, but gets to benefit from the compounded growth of all of his asset over time. He may defer receiving payments until age 70 1/2 if he so desires. Any assets remaining at death do pass to his beneficiaries after all the remainder of taxes due are paid by the trust.
Appreciated stocks can also be placed in a PAT and the capital gains spread out over years. Additional assets can be placed in the trust at later times.
I will be blogging more on specific cases where either the 1031/TIC or PAT benefits a client the most. Both are very powerful and superior retirement planning concepts.
Paula Straub
askpaula@savegainstax.com
Monday, September 12, 2005
Need More Income from your Investment Property?
The goal of every real estate investor is to see their property appreciate in value and to have it generate a positive cash flow. The appreciation normally takes care of itself if the property is of good quality, in a good location, and is held over a long enough period of time. Just like the stock market, real estate has proven to go up way more than it goes down over time.
The positive cash flow component is not always a given though. Ask any seasoned investor, and unless the property is owned free and clear, there have probably been times when he's had to dip into his own pocket to pay for some aspect of his rental. Who hasn't seen a raise in homeowner's fees, property taxes, an outlay of cash for a new roof, plumbing, paint, carpet, appliances, or a length of time supporting it between tenants.
So, what if you're nearing retirement age and see the need for increased and steady income? You may even look forward to taking a permanent break from the "joys" of hands-on property management. We all deserve to reap the rewards of our labors, right?
Basically, to meet these goals, one can do one of two things.
1. Sell the property, pay all the capital gains taxes, recaptured depreciation, etc. and pocket what is left. To receive an income, one would have to either live off whatever interest/gains your proceeds produced, or begin depleting your funds to provide you with the amount of monthly income you deem necessary. Depending on your age and financial needs and whether or not you desire to leave as large a legacy as possible, this approach may or may not work for you.
2. Employ a strategy that will defer the payment of any tax or depreciation. Let all of your gains continue to work for you throughout the course of your retirement and into the next generation. Yet, you will still get a significant and partially tax deductible monthly income.
What strategy is #2? If your property is over a million and you are not a young retiree, you might consider a Private Annuity Trust. You will get monthly income for the rest of your life, but you will be depleting your asset and only spreading out the repayment of capital gains tax over a longer period of time. That is a simplification of a complex agreement, but that is the gist.
A better option may be a 1031 exchange into a tenant in common (TIC), Basically, you exchange your property for a deeded partial interest in a grade A commercial property. You sign a contract with a property management company, and in turn receive a monthly income (typically 6-7% of your total equity). You never have to deplete your asset, and it can pass to your heirs at the stepped up basis.
The 1031/TIC exchange is a fairly new concept, sanctioned by the IRS in 2002. It is projected that the influx of property assets into this type of exchange will be close to 5 Billion dollars in 2005. That's a lot of equity. Why not let your equity continue to work for you instead of parting with a lot of profits that would take you years to replace.
Sign up now to learn the secrets of deferring capital gains tax indefinitely. Visit the link http://www.savegainstax.com
The positive cash flow component is not always a given though. Ask any seasoned investor, and unless the property is owned free and clear, there have probably been times when he's had to dip into his own pocket to pay for some aspect of his rental. Who hasn't seen a raise in homeowner's fees, property taxes, an outlay of cash for a new roof, plumbing, paint, carpet, appliances, or a length of time supporting it between tenants.
So, what if you're nearing retirement age and see the need for increased and steady income? You may even look forward to taking a permanent break from the "joys" of hands-on property management. We all deserve to reap the rewards of our labors, right?
Basically, to meet these goals, one can do one of two things.
1. Sell the property, pay all the capital gains taxes, recaptured depreciation, etc. and pocket what is left. To receive an income, one would have to either live off whatever interest/gains your proceeds produced, or begin depleting your funds to provide you with the amount of monthly income you deem necessary. Depending on your age and financial needs and whether or not you desire to leave as large a legacy as possible, this approach may or may not work for you.
2. Employ a strategy that will defer the payment of any tax or depreciation. Let all of your gains continue to work for you throughout the course of your retirement and into the next generation. Yet, you will still get a significant and partially tax deductible monthly income.
What strategy is #2? If your property is over a million and you are not a young retiree, you might consider a Private Annuity Trust. You will get monthly income for the rest of your life, but you will be depleting your asset and only spreading out the repayment of capital gains tax over a longer period of time. That is a simplification of a complex agreement, but that is the gist.
A better option may be a 1031 exchange into a tenant in common (TIC), Basically, you exchange your property for a deeded partial interest in a grade A commercial property. You sign a contract with a property management company, and in turn receive a monthly income (typically 6-7% of your total equity). You never have to deplete your asset, and it can pass to your heirs at the stepped up basis.
The 1031/TIC exchange is a fairly new concept, sanctioned by the IRS in 2002. It is projected that the influx of property assets into this type of exchange will be close to 5 Billion dollars in 2005. That's a lot of equity. Why not let your equity continue to work for you instead of parting with a lot of profits that would take you years to replace.
Sign up now to learn the secrets of deferring capital gains tax indefinitely. Visit the link http://www.savegainstax.com
Friday, September 09, 2005
You can't usually have everything, right?
As I meet with clients on a daily basis, it's clear that just about everyone wants to get the highest return on investments, have no risk, pay as little as possible for insurance premiums-but have maximum coverage, retire early and live in the home of their dreams.
When I ask what they will give up to obtain these things, they would prefer not to give up anything. If only life worked that way!
It's clear that in today's world we are more of a society that feels entitled. Work ethic, personal sacrifice, and plain old hard labor are harder to find than in years past.
Don't get me wrong, a lot of people work and work and never seem to get ahead. It's the ones with good jobs, lots of toys and no savings that are in for a rude awaking as they approach their retirement years.
With all the recent tradgedies in the gulf coast, we would all do well to think about the important things. Family, friends, personal abilities. We each may be faced with starting from scratch and rebuilding our lives from the ground up, with or without our loved ones.
I still believe what you put out is what is returned to you in due time. So, next time you think you are "entitled" to something, ask yourself why. You may be surprised when you can't come up with a good answer.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
When I ask what they will give up to obtain these things, they would prefer not to give up anything. If only life worked that way!
It's clear that in today's world we are more of a society that feels entitled. Work ethic, personal sacrifice, and plain old hard labor are harder to find than in years past.
Don't get me wrong, a lot of people work and work and never seem to get ahead. It's the ones with good jobs, lots of toys and no savings that are in for a rude awaking as they approach their retirement years.
With all the recent tradgedies in the gulf coast, we would all do well to think about the important things. Family, friends, personal abilities. We each may be faced with starting from scratch and rebuilding our lives from the ground up, with or without our loved ones.
I still believe what you put out is what is returned to you in due time. So, next time you think you are "entitled" to something, ask yourself why. You may be surprised when you can't come up with a good answer.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
Monday, August 29, 2005
5 Options when selling Investment Property
So you want to sell your rental property. Do you know what your options are? You do have several. The crux is, how much of your gains do you actually want to keep?
Option 1: Sell your property and pay Capital Gains Tax, Recaptured Depreciation, and if in California, another 3.3% franchise fee to be held for a year.
Result: Lose the most money overall
Option 2: Sell your property and do a 1031 exchange into a equal or greater value property. Defer Capital Gains and recaptured depreciation.
Result: Usually higher property taxes, a new mortgage and the same property management problems.
Option 3: Set up a Charitable Remainder Trust. Put your property in the trust and have the trust sell the property. Pay no capital gains tax.
Result: Lose control of your asset. Receive income from the gains on the principle during your lifetime. On your death, the principle goes to the charity of your choice. Great if you have no heirs and don't need more income than the interest on the principle provides.
Option 4: Set up a Private Annuity Trust. Put your property in the trust and have the trust sell the asset. Spread out the capital gains over a period where you take equal payments for your lifetime.
Result: Lose control of your asset. Trustee will invest. You can defer taking income and let principle grow for a period of time. Your heirs can receive the remainder of the asset on your death.
Option 5: Do a 1031 exchange into a tenant in common property. Defer all capital gains tax and recaptured depreciation.
Result: Receive contractual monthly income. Have no property management headaches. Receive all appreciation on your share of grade A commercial building. Exchange in the future for another property. On your death, the asset passes to your heirs at stepped up basis under current tax law. No capital gains due. No recaptured depreciation. No depletion of asset.
Obviously, these options have been simplified for this article, but you get the gist.
Which option would be your choice?
Sign up right now for a free teleconference and learn more about which is most beneficial for you.
Visit http://www.savegainstax.com and register for the next call.
Or
email Paula at askpaula@savegainstax.com and ask any questions you may have.
Option 1: Sell your property and pay Capital Gains Tax, Recaptured Depreciation, and if in California, another 3.3% franchise fee to be held for a year.
Result: Lose the most money overall
Option 2: Sell your property and do a 1031 exchange into a equal or greater value property. Defer Capital Gains and recaptured depreciation.
Result: Usually higher property taxes, a new mortgage and the same property management problems.
Option 3: Set up a Charitable Remainder Trust. Put your property in the trust and have the trust sell the property. Pay no capital gains tax.
Result: Lose control of your asset. Receive income from the gains on the principle during your lifetime. On your death, the principle goes to the charity of your choice. Great if you have no heirs and don't need more income than the interest on the principle provides.
Option 4: Set up a Private Annuity Trust. Put your property in the trust and have the trust sell the asset. Spread out the capital gains over a period where you take equal payments for your lifetime.
Result: Lose control of your asset. Trustee will invest. You can defer taking income and let principle grow for a period of time. Your heirs can receive the remainder of the asset on your death.
Option 5: Do a 1031 exchange into a tenant in common property. Defer all capital gains tax and recaptured depreciation.
Result: Receive contractual monthly income. Have no property management headaches. Receive all appreciation on your share of grade A commercial building. Exchange in the future for another property. On your death, the asset passes to your heirs at stepped up basis under current tax law. No capital gains due. No recaptured depreciation. No depletion of asset.
Obviously, these options have been simplified for this article, but you get the gist.
Which option would be your choice?
Sign up right now for a free teleconference and learn more about which is most beneficial for you.
Visit http://www.savegainstax.com and register for the next call.
Or
email Paula at askpaula@savegainstax.com and ask any questions you may have.
Friday, August 26, 2005
Will a 1031 Property Exchange Solve your Problems?
If your problem is listed below, a 1031 exchange may or may not be your solution.
1. Are you a landlord that doesn't want to manage property anymore?
2. Do you want to sell your investment property, but don't want to pay huge amounts of Capital Gains Tax?
3. Is your current income property not producing enough income?
4. Do you have a low adjusted basis and not much debt on your rental?
5. Is your credit rating less than perfect?
If you answered yes to any of the above 5 questions, a traditional 1031 property exchange into another like-kind property might just put you right back to square one!
Let's address each of the 5 problems one at a time.
1. If you exchange your current property for another of equal or greater value you still are faced with the same landlord/tenant problems that you currently have. Sure, you could hire a property manager, but why is it that you currently don't have one?
2. A 1031 property exchange into a like-kind property does defer the payment of Capital Gains tax if you carry over all your equity and at least the same amount of debt. However, since your new property costs you at least as much as you sold the last for, your property taxes will most likely increase. The cost of your new investment has probably just gone up.
3. If your positive cash flow is currently nothing to write home about, your new property will have to justify higher rents, be located in an area with lower property tax, or have fewer maintenance costs. Otherwise, the chances of additional passive income are very slim.
4. Your adjusted basis will carry over as is to the new property, so you will receive the same depreciation benefits as on the prior property, unless you pay more for your exchanged property. Most likely a wash here.
5. A poor credit score may result in a higher interest rate or poorer terms on your new mortgage, assuming you don't own your current property free and clear. Again, this translates into higher ownership costs. You will also pay two sets of closing costs in the transaction.
One more thing to consider is the time it may take to sell your current property, find a replacement property and secure all funding. This must be done within the 1031 specific time frames. Think of the times that escrows have fallen through and loans have dragged on forever and sometimes never closed at all.
Considering your dilemma and possible pros and cons, will a 1031 property exchange put you farther ahead, further behind, or at best put you right back in the same boat you are in now?
If the answer to the last question was not "further ahead", let me suggest that you look into a 1031 exchange that has a slightly different twist.
It's called a 1031 exchange into a tenant in common property. This might just put you in the "farther ahead" category and solve many of your problems. Instead of exchanging into another solely owned investment property, you will get a fractional proportionate share of an A grade commercial property. You will have a deeded interest equal to your share of ownership (your exchange amount).
If done properly:
1. You will no longer be responsible for the property management
2. All capital gains will be deferred.
3. You can get a contractual monthly income from the equity transferred (usually 6-7%)
4. Your carryover basis is the same, but you can acquire extra non-recourse debt without qualifying and receive a higher interest deduction on your monthly income, thus making it less taxable.
5. The debt you acquire with the TIC (assuming your debt/equity ratio is within the accepted guidelines does not require you to obtain a mortgage or pay it down. This is called non-recourse debt. Your credit score does not become a factor, and the closing can be done in a matter of days, not weeks or months.
Now, ask your self again. Would a 1031 exchange into a tenant in common solve your problems? If the answer is "yes", what are you waiting for?
1. Are you a landlord that doesn't want to manage property anymore?
2. Do you want to sell your investment property, but don't want to pay huge amounts of Capital Gains Tax?
3. Is your current income property not producing enough income?
4. Do you have a low adjusted basis and not much debt on your rental?
5. Is your credit rating less than perfect?
If you answered yes to any of the above 5 questions, a traditional 1031 property exchange into another like-kind property might just put you right back to square one!
Let's address each of the 5 problems one at a time.
1. If you exchange your current property for another of equal or greater value you still are faced with the same landlord/tenant problems that you currently have. Sure, you could hire a property manager, but why is it that you currently don't have one?
2. A 1031 property exchange into a like-kind property does defer the payment of Capital Gains tax if you carry over all your equity and at least the same amount of debt. However, since your new property costs you at least as much as you sold the last for, your property taxes will most likely increase. The cost of your new investment has probably just gone up.
3. If your positive cash flow is currently nothing to write home about, your new property will have to justify higher rents, be located in an area with lower property tax, or have fewer maintenance costs. Otherwise, the chances of additional passive income are very slim.
4. Your adjusted basis will carry over as is to the new property, so you will receive the same depreciation benefits as on the prior property, unless you pay more for your exchanged property. Most likely a wash here.
5. A poor credit score may result in a higher interest rate or poorer terms on your new mortgage, assuming you don't own your current property free and clear. Again, this translates into higher ownership costs. You will also pay two sets of closing costs in the transaction.
One more thing to consider is the time it may take to sell your current property, find a replacement property and secure all funding. This must be done within the 1031 specific time frames. Think of the times that escrows have fallen through and loans have dragged on forever and sometimes never closed at all.
Considering your dilemma and possible pros and cons, will a 1031 property exchange put you farther ahead, further behind, or at best put you right back in the same boat you are in now?
If the answer to the last question was not "further ahead", let me suggest that you look into a 1031 exchange that has a slightly different twist.
It's called a 1031 exchange into a tenant in common property. This might just put you in the "farther ahead" category and solve many of your problems. Instead of exchanging into another solely owned investment property, you will get a fractional proportionate share of an A grade commercial property. You will have a deeded interest equal to your share of ownership (your exchange amount).
If done properly:
1. You will no longer be responsible for the property management
2. All capital gains will be deferred.
3. You can get a contractual monthly income from the equity transferred (usually 6-7%)
4. Your carryover basis is the same, but you can acquire extra non-recourse debt without qualifying and receive a higher interest deduction on your monthly income, thus making it less taxable.
5. The debt you acquire with the TIC (assuming your debt/equity ratio is within the accepted guidelines does not require you to obtain a mortgage or pay it down. This is called non-recourse debt. Your credit score does not become a factor, and the closing can be done in a matter of days, not weeks or months.
Now, ask your self again. Would a 1031 exchange into a tenant in common solve your problems? If the answer is "yes", what are you waiting for?
Monday, August 08, 2005
3 Mistakes to Absolutely Avoid when doing a 1031 Exchange into to TIC
Have you ever wondered how an absolutely terrific concept can go so horribly wrong?
Don't you just hate to hear "I told you so" from your well-meaning friends and family?
Ever catch yourself saying "If only I'd have..."?
I'm one of those people who like to learn from someone else's mistakes. It saves me all kind of heartache and pain. If you're at all like me and have thought about doing a 1031 like-kind property exchange into a tenant in common (TIC) property, my bet is you'll be glad you did. If you can just avoid the 3 pitfalls that can make you wish you hadn't!
Before I let you in on the secrets, let me briefly explain exactly what a 1031 exchange into a tenant in common property is. It's a pretty well-kept secret in and of itself.
Those who benefit most greatly from this type of an exchange usually have several things in common.
1. They own investment property that has appreciated significantly in value.
2. They are tired of all the hassles of property management.
3. They don't want to pay huge amounts of capital gains tax if they sell.
4. They appreciate a significant increase in monthly passive income.
5. And, lastly, they still enjoy the relative stability of owning real estate.
Know of anyone who fits this description? If so, read on.
A 1031 exchange is when an investment property owner sells his current property and exchanges it for a "like-kind" property of equal or greater value. By doing so, he defers the payment of capital gains tax and the consequences of recaptured depreciation.
By exchanging into a tenant in common property, or a TIC, he becomes a part owner of a large commercial property managed by professionals who in turn pay him a monthly income. For those individuals described above, it can be a very valuable transaction. It often comes with fewer strings than private annuity or charitable remainder trusts, or an exchange into another property that needs their attention and drains their cash. I find that very few individuals, CPA's, attorneys, or even financial planners are well versed or knowledgeable in this area.
So what must you avoid at all costs when contemplating this exchange? The following three potentially disastrous scenarios.
First, do not deal with an investment company that does not have their act together. If they seem like they don't know what they are doing, run! Look into their history and prior offerings. Are the properties "A" grade commercial buildings, or something less desirable? Ideally, this should be their only business. Research the area where the new property is located. A local realtor or chamber of commerce can be very helpful in describing the area and the local economy. The property should already be almost fully occupied with quality tenants. If it was recently "refurbished" be sure to find out why that was necessary and what exactly was done. Be careful with Limited Partnerships when only one or two major players make all the decisions. Ask how they find the properties and what criteria they use to select them. Quality properties are hard to find and sell out quickly. Unless you have extensive experience in commercial property, don't get together a bunch of your friends and try and choose this property on your own. Ask yourself if you would like your office in that building, or see your doctor there, or shop in those stores. Remember in real estate the quality properties always remain more desirable, even when the mediocre properties start to lag.
Second, don't choose an Accommodator that has not done many, many of these transactions. This Qualified Intermediary is the one that makes sure all the documents and money transfers meet all the guidelines. He will set up your LLC. Your family attorney or estate planning attorney is most likely not your best choice. The last thing you want is the IRS sending you a hefty bill for taxes or penalties due to an incompetent or inexperienced Accommodator error.
Third, don't skimp on the property management company. They are extremely crucial to the property performance. You will be depending on them to handle the day to day problems that arise, carry the proper insurance, pay the property taxes on time, and keep your building fully occupied and in tip top shape. This company should offer you a long term triple net lease that has your annual income percentages spelled out, along with scheduled increases. There aren't many out there willing or able to do this. Ask to see their track record with other properties, and for a list of any judgments brought against them. Ask them if they've ever requested special assessments, or had any foreclosures. A good management company is worth its weight in gold. You want them to make a hefty profit, because their performance is directly related to your investment stability.
There you have it. I'm sure you've heard the saying "Penny wise and Pound Foolish". This is one time hiring the best will definitely bring you the most favorable results. It should truly be a win-win situation for everyone involved.
If you avoid the 3 major mistakes for the 1031 exchange into a tenant in common property, you will be the one saying "I told you so" as you collect your monthly check and watch your investment grow.
=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
How much would you pay to save thousands in Capital Gains Tax?
I'll teach you for free in a Teleconference that may change your life.
Sign up at ==> http://www.savegainstax.com
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
Don't you just hate to hear "I told you so" from your well-meaning friends and family?
Ever catch yourself saying "If only I'd have..."?
I'm one of those people who like to learn from someone else's mistakes. It saves me all kind of heartache and pain. If you're at all like me and have thought about doing a 1031 like-kind property exchange into a tenant in common (TIC) property, my bet is you'll be glad you did. If you can just avoid the 3 pitfalls that can make you wish you hadn't!
Before I let you in on the secrets, let me briefly explain exactly what a 1031 exchange into a tenant in common property is. It's a pretty well-kept secret in and of itself.
Those who benefit most greatly from this type of an exchange usually have several things in common.
1. They own investment property that has appreciated significantly in value.
2. They are tired of all the hassles of property management.
3. They don't want to pay huge amounts of capital gains tax if they sell.
4. They appreciate a significant increase in monthly passive income.
5. And, lastly, they still enjoy the relative stability of owning real estate.
Know of anyone who fits this description? If so, read on.
A 1031 exchange is when an investment property owner sells his current property and exchanges it for a "like-kind" property of equal or greater value. By doing so, he defers the payment of capital gains tax and the consequences of recaptured depreciation.
By exchanging into a tenant in common property, or a TIC, he becomes a part owner of a large commercial property managed by professionals who in turn pay him a monthly income. For those individuals described above, it can be a very valuable transaction. It often comes with fewer strings than private annuity or charitable remainder trusts, or an exchange into another property that needs their attention and drains their cash. I find that very few individuals, CPA's, attorneys, or even financial planners are well versed or knowledgeable in this area.
So what must you avoid at all costs when contemplating this exchange? The following three potentially disastrous scenarios.
First, do not deal with an investment company that does not have their act together. If they seem like they don't know what they are doing, run! Look into their history and prior offerings. Are the properties "A" grade commercial buildings, or something less desirable? Ideally, this should be their only business. Research the area where the new property is located. A local realtor or chamber of commerce can be very helpful in describing the area and the local economy. The property should already be almost fully occupied with quality tenants. If it was recently "refurbished" be sure to find out why that was necessary and what exactly was done. Be careful with Limited Partnerships when only one or two major players make all the decisions. Ask how they find the properties and what criteria they use to select them. Quality properties are hard to find and sell out quickly. Unless you have extensive experience in commercial property, don't get together a bunch of your friends and try and choose this property on your own. Ask yourself if you would like your office in that building, or see your doctor there, or shop in those stores. Remember in real estate the quality properties always remain more desirable, even when the mediocre properties start to lag.
Second, don't choose an Accommodator that has not done many, many of these transactions. This Qualified Intermediary is the one that makes sure all the documents and money transfers meet all the guidelines. He will set up your LLC. Your family attorney or estate planning attorney is most likely not your best choice. The last thing you want is the IRS sending you a hefty bill for taxes or penalties due to an incompetent or inexperienced Accommodator error.
Third, don't skimp on the property management company. They are extremely crucial to the property performance. You will be depending on them to handle the day to day problems that arise, carry the proper insurance, pay the property taxes on time, and keep your building fully occupied and in tip top shape. This company should offer you a long term triple net lease that has your annual income percentages spelled out, along with scheduled increases. There aren't many out there willing or able to do this. Ask to see their track record with other properties, and for a list of any judgments brought against them. Ask them if they've ever requested special assessments, or had any foreclosures. A good management company is worth its weight in gold. You want them to make a hefty profit, because their performance is directly related to your investment stability.
There you have it. I'm sure you've heard the saying "Penny wise and Pound Foolish". This is one time hiring the best will definitely bring you the most favorable results. It should truly be a win-win situation for everyone involved.
If you avoid the 3 major mistakes for the 1031 exchange into a tenant in common property, you will be the one saying "I told you so" as you collect your monthly check and watch your investment grow.
=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
How much would you pay to save thousands in Capital Gains Tax?
I'll teach you for free in a Teleconference that may change your life.
Sign up at ==> http://www.savegainstax.com
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
Tuesday, August 02, 2005
Are you tired of Tenants, Toilets and Trash?
Are you tired of Tenants, Trash and Toilets?
-by Paula Straub
(c)Paula Straub - All Rights reserved http://www.savegainstax.com
===========================================================
Wouldn't you rather go to Tahiti?Are you a landlord with rental property whose value hassignificantly appreciated?Are you ready to cash in those profits and take that trip toTahiti?
Before selling your property, check with your accountant whowill tell you that you will be paying $60,000 in CapitalGains Tax to Uncle Sam. Your accountant will also tell youthat adding another $20,000 to your income by that sale iscalled recaptured depreciation. This will bump you into thenext tax bracket and doom you next April 15th into sendingthe IRS a check for maybe another $7,000.
Are you still ready to sell that property?It looks like that trip to Tahiti is going to be sometime inthe far future…
But wait! You decide to check with your realtor and thenfind out about a 1031 exchange to defer your Capital Gains. Your realtor tells you if you buy another like-kind rentalproperty of equal or greater value, you won't get hit withthe gains tax on the sale. That is all fine and good, butit does not really get you out of the headaches associatedwith collecting rent, keeping your unit occupied, findingclean/classy tenants that won't trash the place, nor does itkeep you from getting that 2am call to fix an overflowingtoilet. To top this off, now you have to pay more inproperty taxes and must charge higher rent.
Hmm…maybe this idea is not the ticket to that South Pacificparadise either.
This is the dilemma I heard from my financial clients againand again. They were frustrated and felt trapped in theircurrent situation. So what is a frustrated income propertyowner to do? After a lot of research and roadblocks, I foundthe perfect solution that has changed the lives of myclients and took away stress to bring enjoyment of life.
For anyone who is tired of being a landlord and who owns arental/commercial property that has gone up a lot in value,take heart.A 1031 exchange into a Tenant In Common Property may be youranswer.
There are very specific rules to follow set by the IRS, andthe entire detailed process is the subject for a futurearticle, but here's the gist: 1-Sell your current incomeproperty; 2-Before the close of escrow, you declare via a QualifiedIntermediary (also called an Accommodator, who is aqualified third party) that you intend to do a 1031 exchangeinto a Tenant in Common Property; 3-Work with a reputablecompany to identify a property that you would like topurchase an interest in; 4-At the close of escrow, yourproceeds are transferred by the Accommodator to purchaseyour proportionate share of a larger "A" rated commercialbuilding; 5-You may choose a business center, a medicaloffice building, or similar high-end property; and lastly, 6-You get a deeded interest in this property, so you cankeep it, resell it, pass it to your heirs, or even gift itto charity upon your death.
The way that this works is all the new fractional owners, or"Tenants in Common" hire an ace Management Company to handleall the property management tasks. The company finds andkeeps high quality tenants, does the maintenance andupgrades, pays the property taxes, and handles all the dayto day crisis that arise. Probably the three most importantfactors in this entire process are: 1-Your choice of companythat offers the properties for sale; 2-the Accommodator,and; 3-the management company.
Make sure each of the three parts is a top notch with proventrack records. Anything less could spell disaster.
When this 1031 option is done properly, your benefits willbe:Deferral of all Capital Gains,A monthly contractual income (usually based on 6-7% returnon equity),Building depreciation for tax savings,Unlimited property appreciation potential, andNo more headaches of property management.
Good-bye Tenants, Trash and Toilets!Hello Tahiti!
-by Paula Straub
(c)Paula Straub - All Rights reserved http://www.savegainstax.com
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Wouldn't you rather go to Tahiti?Are you a landlord with rental property whose value hassignificantly appreciated?Are you ready to cash in those profits and take that trip toTahiti?
Before selling your property, check with your accountant whowill tell you that you will be paying $60,000 in CapitalGains Tax to Uncle Sam. Your accountant will also tell youthat adding another $20,000 to your income by that sale iscalled recaptured depreciation. This will bump you into thenext tax bracket and doom you next April 15th into sendingthe IRS a check for maybe another $7,000.
Are you still ready to sell that property?It looks like that trip to Tahiti is going to be sometime inthe far future…
But wait! You decide to check with your realtor and thenfind out about a 1031 exchange to defer your Capital Gains. Your realtor tells you if you buy another like-kind rentalproperty of equal or greater value, you won't get hit withthe gains tax on the sale. That is all fine and good, butit does not really get you out of the headaches associatedwith collecting rent, keeping your unit occupied, findingclean/classy tenants that won't trash the place, nor does itkeep you from getting that 2am call to fix an overflowingtoilet. To top this off, now you have to pay more inproperty taxes and must charge higher rent.
Hmm…maybe this idea is not the ticket to that South Pacificparadise either.
This is the dilemma I heard from my financial clients againand again. They were frustrated and felt trapped in theircurrent situation. So what is a frustrated income propertyowner to do? After a lot of research and roadblocks, I foundthe perfect solution that has changed the lives of myclients and took away stress to bring enjoyment of life.
For anyone who is tired of being a landlord and who owns arental/commercial property that has gone up a lot in value,take heart.A 1031 exchange into a Tenant In Common Property may be youranswer.
There are very specific rules to follow set by the IRS, andthe entire detailed process is the subject for a futurearticle, but here's the gist: 1-Sell your current incomeproperty; 2-Before the close of escrow, you declare via a QualifiedIntermediary (also called an Accommodator, who is aqualified third party) that you intend to do a 1031 exchangeinto a Tenant in Common Property; 3-Work with a reputablecompany to identify a property that you would like topurchase an interest in; 4-At the close of escrow, yourproceeds are transferred by the Accommodator to purchaseyour proportionate share of a larger "A" rated commercialbuilding; 5-You may choose a business center, a medicaloffice building, or similar high-end property; and lastly, 6-You get a deeded interest in this property, so you cankeep it, resell it, pass it to your heirs, or even gift itto charity upon your death.
The way that this works is all the new fractional owners, or"Tenants in Common" hire an ace Management Company to handleall the property management tasks. The company finds andkeeps high quality tenants, does the maintenance andupgrades, pays the property taxes, and handles all the dayto day crisis that arise. Probably the three most importantfactors in this entire process are: 1-Your choice of companythat offers the properties for sale; 2-the Accommodator,and; 3-the management company.
Make sure each of the three parts is a top notch with proventrack records. Anything less could spell disaster.
When this 1031 option is done properly, your benefits willbe:Deferral of all Capital Gains,A monthly contractual income (usually based on 6-7% returnon equity),Building depreciation for tax savings,Unlimited property appreciation potential, andNo more headaches of property management.
Good-bye Tenants, Trash and Toilets!Hello Tahiti!
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