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
Wednesday, October 12, 2005
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
Subscribe to:
Posts (Atom)