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
Friday, October 07, 2005
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
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