Thursday, December 20, 2007

AMT fix for 2007 Finally Here

Well, the powers that be have decided to give the AMT (Alternative Minimum Tax) a band aid again this year.

There was a lot of dissension amongst Republicans and Democrats on how to save about 20million people from being hit with an average of 2K of extra taxes this year.

The republicans wanted to raise the income ceiling without adding a new tax somewhere else, and the democrats wanted to make sure the loss was paid for with a tax increase in another area to offset it.

The republicans won this round, as time was critical and the dems didn't have enough votes to veto it.

So, will you escape the AMT? It really depends. If you are married and make less than 66K as a couple you may.

If you have a large capital gain for 2007, you may not be so lucky as this may trigger it for your tax return.

There's not much time left to do anything about it, so make sure you run some calculations to see if you will owe extra tax this year.

Oh, yeah. The IRS now has to scramble to correct the forms for 2007 returns. They say that if you are expecting a tax refund, you can expect a delay. Happy New Year.

Hope you are in the lucky group that is not affected.

Paula Straub

Blogging tools

I'm evaluating a multi-media course on blogging from the folks at Simpleology. For a while, they're letting you snag it for free if you post about it on your blog.

It covers:

  • The best blogging techniques.
  • How to get traffic to your blog.
  • How to turn your blog into money.

I'll let you know what I think once I've had a chance to check it out. Meanwhile, go grab yours while it's still free.

Monday, December 10, 2007

Taking the Long Term View

As I’ve said many times before, there isn’t anyone who is selling an appreciated asset who doesn’t want full liquidity, full control, high interest guarantees and no tax obligation whatsoever.

This is not an option unless you want the wrath of the IRS upon you. So, the best option is to use the current tax laws to full advantage and give up some of the above to receive some savings in return.

Unless you are doing a 1031 exchange which can defer all taxes, to save on capital gains you need to resolve yourself to take payments in one of the other strategies over time.

If you take it all at once, you pay taxes all at once. Period.

Receiving a payment stream is really a good thing in most cases. Especially for anyone approaching or already in retirement.

There is a reason why you don’t receive your company pension or your social security in a lump sum. Most people would go through the entire amount long before their lives were over and would have nothing to live on.

Just check the statistics on Lotto winners and professional athletes and entertainers.

I know it is appealing to think of a big pile of money sitting in your bank account where you can access it at any time. But, ask yourself when was the last time you needed to access a huge sum all at once while you were growing your asset over the years.

The next article will focus on some instances where having an ongoing income stream can really be of benefit.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at

Tuesday, December 04, 2007

Case Study for Lump Sum Distribution Tax Reduction

Ask anyone in the tax business and they will tell you the worst way to be taxed is as ordinary income. This is because (with the possible exception of some corporate rates) you will pay tax at the highest rates in effect.

I’ve had several clients receive large sums of compensation in 2007. The reasons range from a pension or deferred compensation lump sum payout that was unavoidable, to a large lump sum that resulted from a business sale payout package.

Once income is received there is no way to defer the tax due. However, there may very well be a way to minimize it. Let’s look at a real life example.

Client Mark received a lump sum income distribution of 1 million dollars in 2007 from a business sale. He was going to owe close to 45% in income tax, or 450K. That would have left him with only 550K to retire on.

Since the taxable event had already occurred, his only option was to try and reduce the 450K tax bill.

This was accomplished with a Charitable Installment Bargain Sale. The idea was to get a large tax deduction to reduce the income tax due and then receive a guaranteed income stream over a period of 25 years.

Of the million dollar income, 750K was placed in a Charitable Bargain Sale with an initial donation of 75K cash to the charity. This was able to generate a 509K tax deduction when calculated using the 25year installment payout option for the remainder.

Even with the IRS rules for charitable deductions on high income earners, Mark will be able to reduce his AGI by almost 50% in 2007 using his tax deduction. He will receive monthly payments of $4,227.60 for 25 years for a total return on his 750K of $1,268,280.00 and his tax bill will be reduced by at least 50% for 2007 and be closer to 225K, for an immediate 225K tax savings.

That’s close to one quarter of one million dollars of immediate tax savings, and his income stream will be partially non taxable, as he has already paid tax on the principle. Only the interest component will be taxable as ordinary income in future years.

Every case is different, and including your tax advisor in the planning process is essential. All aspects of your situation should be considered, as well as estate and retirement planning needs.

It is definitely worth exploring your options when a large sum of income is accrued in one calendar year, especially if you are nearing retirement and will be needing as much of this money as possible to sustain your future income.

Be sure to put something in place prior to December 31sr . If you wait past the end of the tax year you will owe all of the tax in April.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at

Monday, November 26, 2007

Upcoming Appearance on the Daily Bear Radio Show 11/27/07

Just wanted to let you know I will be appearing live on the radio on “The Daily Bear Show” on Money Matters Radio Network on Tuesday, November 27, 2007 at 8:20a.m PST/11:20am EST.

I’ll be discussing with host Lou Michaels how to maximize your retirement savings with capital gains tax strategies.

You can listen live on the internet with streaming audio at

Hope you get a chance to tune in!

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at

Monday, November 05, 2007

Those in These Categories Need to Take Action by Year’s End

Does this sound like your situation?

It’s already November and the end of the tax year is approaching quickly. If you are in any of the following situations, you need to act now or it will be too late to lower your tax obligation for 2007.

* You sold an asset in 2007 tax year with capital gain of over 100K and did not have a tax saving strategy in place prior to sale.

* You are getting a large lump sum of compensation by December 31st which will put you into a high tax bracket and you will be sending 33%-50% to the IRS in the form of income tax.

* The sale of your asset will occur on or before December 31, 2007 and you will have a capital gain of over 100K.

Depending on which category you fall into, your savings could range from significant to massive. In all the above cases, it is crucial you have the understanding of the consequences vs. rewards should you decide to act and protect your monies.

Many people think that April is my busiest month since that is tax deadline. This is true for CPAs and tax professionals who file returns but not for me.

December is one of my busiest months because it is the last chance to minimize a tax obligation which occurs in the current calendar year.

With the pressure of the holidays approaching, give yourself a gift and don’t wait until the last minute to hang onto your gains. It’s no fun come April 15th when you have to write out a huge check to the IRS and you wish you could have a “do-over”.

Fill out the confidential Qualification Questionnaire at the link below and I will contact you directly, or call me at (760)917-0858 for a complimentary consultation. You still have time to act, but this window will be closed before you know it! - Questionnaire link

Paula Straub
Save Gains Tax LLC

Wednesday, October 31, 2007

Bottom Line – Installment Sale Through a Foundation – Part V

So far, I have addressed some of the ins and outs of the 1031 exchange, the Charitable Remainder Trust, the Structured Sale, and now will do the same for the Installment Sale Through a Foundation.

There is no one particular strategy that is right for everyone, and it behooves you to work with someone who can review your whole financial picture and needs so that you can compare and contrast all of your options and find the right one or ones for you.

The Installment sale through a foundation works with pretty much all highly appreciated assets. Currently, there is only one foundation set up to handle this transaction though I predict more will follow suit over time. This strategy had been in the works for over a year to handle the disposition of C-Corps, but was put into full swing in January 2007 following the removal of the Private Annuity Trust for tax deferral by the IRS in October 2006.

A Charitable Bargain Sale is performed by a 501C3 Charitable Foundation and the asset is purchased by the Charity at a discount from Fair Market Value. The Charity then sells the same asset at fair market value to your buyer and receives the proceeds in cash.

The amount of discount is your donation to the charity, which launches a charitable deduction for you to reduce your taxable income for up to a total of 6 years, or until the deduction granted has been fully used up. If there are taxes due for depreciation recapture or due to forgiveness of debt, this deduction will reduce the amount owed at time of your next tax filing. There will also be partial forgiveness of capital gain and depreciation recapture on the amount donated.

The charity then enters into an installment sale agreement with you, the seller, to pay back the remainder of the money over time in installment payments with a fixed interest rate on those monies between 5.5 and 6%. The remainder of the capital gains tax due is paid only as received as in the Structured Sale and is spread out over many years.

Your actual tax deduction will be greater than the original contribution, as there is a projected deduction added for an additional contribution at the end of the contracted payments. Any interest earned in excess of the interest paid out to you will go to the charity once the installment agreement has been satisfied. The charity provides a letter of explanation regarding the deduction to the IRS at time of close and to you for your records.

Since you have an installment contract with the foundation, if there is a need to amend the terms in the future, as long as both parties agree and any penalties for early withdrawal are accounted for and paid, the contract can possibly be amended or canceled. Please note, although circumstances may warrant such an act, it is almost always better financially to stick to the original terms.

So, what you need to address is how much will it cost to set up? How is my money invested and protected? What if something happens to the foundation? Are there any ongoing fees? Do I have legal representation? Do my heirs get any monies left over if I pass away before the installment agreement has been satisfied?

Because your monies are invested and segregated with a large insurance company in a commercial annuity product with a principal guarantee there is little risk of loss, as is the case with the Structured Sale. Since here the annuity is not annuitized, it allows for a higher interest rate payout and more flexibility.

It is always a good idea to compare each vehicle side by side for your unique situation. The bottom line should be safety, tax minimization and overall return. The whole idea is to keep as much of your proceeds as legally possible and to do it with as little risk as possible.

It is just as imperative to work with a professional who understands the ins and outs of each strategy and can explain the pros and cons of each. If you don’t know the right questions to ask or what answers to expect, you may not fully understand what you have committed to and it will be too late to change your mind.

This is where I can be of most help.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at

Wildfire Aftermath

I just want to take a moment to thank everyone who sent their good thoughts my way during the recent fires here in San Diego. It worked because my home was spared despite spending three days with my bags packed and on standby evacuation status.

Many others weren’t as fortunate and are faced with the inordinate task of getting their lives back on track after losing everything they own.

A tragedy such as what happened throughout Southern California will have some far reaching impacts that most don’t think about.

Those who lost businesses no longer have a source of income but may still have outstanding business expenses to deal with. Those who lost homes with mortgages still have those payments to make as well as the cost of alternative living arrangements.

Those with properties for sale in affected neighborhoods will no doubt be forced to reduce asking prices or hang onto them for years.

Many will face foreclosure or bankruptcy. Insurance often does not cover all the expenses which arrive and it takes a long time to rebuild.

Real estate is a great investment in most cases and should be part of any portfolio. If you are house rich and cash poor any act of nature can upset your financial and retirement plans. And, yes, it Can happen to you.

Ask any of the people affected by these fires if they’d rather have a guaranteed income stream still arriving every month at this point or a paid up home which has just been demolished. I know what my choice would be.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at

Thursday, October 25, 2007

The IRS Giveth, and the IRS Taketh Away

If you haven’t noticed a pattern yet, when tax law changes to benefit one segment of the population (resulting in a loss of revenue to the IRS), there is usually some other change that reduces benefits to a different population segment, thus making up for the former loss.

Such is exactly what will happen if pending legislation passes into law.

HR 3648, or the Mortgage Cancellation Tax Relief Act, passed the House of Representatives Oct. 4, 2007 and is up for consideration in the Senate. If the bill becomes law, its tighter restrictions may require a new strategy for some investors.

Here is the gist in laymen’s terms of what this might mean to the average investor.

If you are in danger of foreclosure on your existing mortgage, a buyer may make a deal with your lender to purchase your home for less than what you owe. You are “forgiven” the difference from the lender, but under current tax law you must declare this forgiven amount as income on your tax return and pay income tax on money you don’t have. If you are already having trouble making mortgage payments, you often have trouble coming up with this extra tax payment and you are back to square one.

HR 3648 would exempt you from having to declare this as income in this situation. That’s the good news, but that’s a lot of money the IRS would be losing.

So, in order to save those with mortgage issues, the proposal is to tighten the rules for taking some personal exclusions on primary residences. Currently, if you own and live in your home for at least 2 of the last 5 years, you are allowed a personal exclusion of 250K if single and 500K if married filing jointly for capital gain when you sell.

What patient and savvy planners have been doing is selling their primary residences, taking the exclusion and moving into their appreciated second home or investment property for 2 years and then selling it and taking another exclusion to once again avoid capital gains tax.

What HR 3648 will do is limit the amount of exclusion available to you to the gain accrued only during the time you reside in that second property. So, if the property had increased in value by 300K prior to you moving in, then another 100K in the 2 years you resided in it, your exclusion would be limited to 100K when you sold and not the currently allowed 400K total gain (if married).

As with any tax law, if you are in neither of these situations you probably could care less. If you fall into the second category you will need a “plan B” to minimize your capital gains. Just be aware that laws constantly change and what is true today may be obsolete tomorrow. It’s a full time job just keeping up!

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at

Tuesday, October 16, 2007

Bottom Line - Structured Sales - Part IV

This is the fourth part in a series designed to give some food for thought when considering different tax saving strategies.

When utilizing a structured sale, there are several different parties involved. The company handling the proceeds from the sale and effectively making payments back to you over time is the “Assignment Company”.

Your buyer actually never revokes his obligation to make the payments to you, but assigns this obligation to the assignment company. There is not a whole lot of risk in doing this the way it is set up, but some buyers may not be on board with the concept.

The assignment companies currently offering the structured sales are located offshore in Barbados. There are many favorable tax breaks for offshore companies, but should the need arise to ever enter into a legal action with an offshore company, it is a bit more complicated than if the company were in the USA. They are subject to different tax laws and it is a bit more involved to litigate outside the US.

The insurance company who will hold your funds in a single premium immediate annuity and pay you somewhere between a fixed 3-4% interest rate is a large, well established company such as Prudential or Allstate. Due to current requirements for all insurance companies, there is little risk that you will not be repaid as promised.

Once the payments begin, there is little to be done but receive them until the obligation has been repaid. Canceling is not really an option without incurring major loss.

If you have a large amount of depreciation recapture, or a large mortgage, there will be a significant tax obligation due on sale. These numbers need to be addressed prior to implementation so you keep enough out of the transaction to pay the tax bill and don’t get stuck owing money you must take from savings or worse yet have to take out a loan to pay back.

You do get the chance to spread out the remainder of capital gains tax due over time, the risk is low and the fees are minimal. You have to weigh this against what you will owe right away, and the fact that you are locked in for many years at a low interest rate and little option to change the terms or cancel without substantial penalties.

As always, if you have a good understanding of what is involved, you are better able to choose what suits your needs. Make sure you always deal with an experienced party who will make sure the transaction is set up properly and follows all the IRS guidelines and reporting procedures.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at

Tuesday, October 09, 2007

Bottom Line - The Charitable Remainder Trust (or any Irrevocable Trust) Part III

The Charitable Remainder Trust has been around for quite a while as well. It comes in many different forms that have acronyms like CRT, CRUT, CRAT, NIMCRUT, CGA. There are a couple of capital gains tax strategies that also involve non-charitable irrevocable trusts.

The differences are too complex to go into detail in this article, but the gist is that you pledge all or part of an asset to a charity either immediately or at your death for benefits like a tax deduction, tax forgiveness and an income stream while living. For the non-charitable trusts, you basically give up control of your asset for a series of installment payments and pay taxes as you receive principle.

The IRS allows you favorable tax treatment if you pledge to a charity and exchange control of your asset for a series of interest payments. Here are some considerations when contemplating an irrevocable trust.

Who will own the trust? The Charity or (if a non-charitable trust) Related and/or Unrelated parties? What happens if something happens to one of the owners? Who does ownership pass to then? Will the new owner have your best interests at heart?

What happens if the trust defaults on making payments?

One might be perfectly comfortable with a chosen representative, but what if they pass away or are no longer able to handle their responsibility?

What are the costs involved in setting up and maintaining a trust? Once you find out what it costs to establish one, administer one, file annual tax returns and audit one on an ongoing basis you may be taken aback at how fees diminish anticipated returns.

Who is the trustee? This is supposed to be a knowledgeable person and fiduciary who invests the funds prudently with the main goal of meeting the payment obligation for the length of the agreement.

You might be lured into believing the assets will generate high returns on an ongoing basis and are not limited to principle protecting vehicles. What you may not realize is:
If the trust does make more money than it is obligated to pay out to you each year it must file its own tax return and pay income tax. Trust income tax rates are higher than personal income tax rates and can quickly reduce a gain.
Most of the money you will receive in annual payments will be taxed at ordinary income rates. Depending on the amount and your tax bracket, this might also take a huge chunk of your payment stream.
If the funds are not in a guaranteed environment, this means the funds can also lose money. If your payments are fixed, the trust can run out of money prior to your full payout. If you are getting variable income, it can decrease in future years, just when you may need more to offset inflation. Do you have other sources of income if this should happen?
The more actively managed the funds are, the higher the trading costs and management fees. This also requires more careful auditing and oversight.

A charitable trust will leave the remainder to the charity at your death. If you have heirs to consider, you may have to use insurance to replace the amount passed to charity. Are you insurable? Can you afford the insurance premiums?

Again, the considerations above are not comprehensive but should give much food for thought. There are ways to protect your funds and still give you a good return. For many, slow and steady should outweigh shooting for the brass ring at a stage in life where protection is more important than accumulation and the associated risk.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at

Monday, October 08, 2007

A Good Problem to Have

It is true, the more money you have, the more options you have. That’s all good, and evidenced by a recent situation I encountered.

A man and his wife in their mid-fifties were receiving their portion of family real estate holdings in an upcoming sale. Their portion of the gain was 4.5 million dollars. They live in California, and there was depreciation recapture involved, so their tax obligation was over 1.3 million dollars if they sold outright and paid their tax bill.

We discussed many options and there was no bad plan. Most of us would be thrilled to have the choices they did. This was not their only asset or source of income. Even if they paid their taxes it would not have affected their current or future life style.

What they decided to do was a bit surprising, but given their situation, it worked for them.

They chose to do a 1031 exchange, but their choice of exchange property was a 4.5 Million dollar single family home that they eventually want to make their primary residence.

They plan to rent it out for a couple of years (who actually rents a 4.5M house?) to satisfy the exchange rules and then move in.

Even in California, 4.5M buys a pretty darn nice property. I can’t even fathom paying property taxes, insurance costs and upkeep on an annual basis- even if there is no mortgage. But then again, this is a problem I would love to have!

As you can tell, this couple can afford to take a loss if they have to. They have other assets and income which are unrelated to this property, and have options most of us will never have to worry about deciding between.

Their biggest concern going forward will be estate planning for passing wealth tax efficiently to future generations. (lucky kids)

I wonder if they have any interest in “adopting”. I am going to throw my hat in the ring.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at

Monday, October 01, 2007

The Cost of a 1031 Exchange

To do a 1031 exchange, you must file paperwork with a Qualified Intermediary prior to close of escrow. The QI receives the money from the sale of your relinquished property and holds it until you purchase the exchanged property. They release the funds in escrow at the close of the exchange. You must never have possession of these funds per IRS 1031 exchange rules.

There are not enough regulations to govern those acting as Intermediaries. Property sellers in Idaho found out the hard way. Below is the link to the article describing how many exchangers lost their entire investment.

There is a way to insure your funds. It is in associating with an experienced QI who is educated, insured and bonded and also pays interest on your funds while they are being held.

Fees differ even within the same state. The most expensive one is not necessarily the best. I refer my clients to a well known national firm who charges a flat $400.00 fee per exchange. I receive no compensation from these referrals. I just know they know what they are doing, the client is taken care of and that the money will be safe.

Another way a poor intermediary can harm you is if they do not keep up with your particulars and work with you to insure all of the deadlines are met. Many will leave it up to you to keep track of important dates and will only inform you it is too late if you should fall outside the IRS parameters.

Learn from the unfortunate mistakes of others. Enlist the help of experienced professionals who will guide you through whatever process you choose and make sure all is done correctly, legally and timely. It’s taken me a long time to develop a team I can count on. When we work together they become your team as well.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at

Friday, September 28, 2007

Bottom Line - The 1031 Exchange Part II

1031 Exchanges have been around for quite a long time. The IRS has clear guidelines on what qualifies and the rules for doing one. If you qualify, doing one correctly allows you to defer all taxes until you eventually sell your property outright. This article isn’t to go over the details. it’s to point out some of the considerations when doing an exchange.

You are exchanging for another piece of real estate. Whether it is one you will own and manage alone or if you will be a tenant in common, you need to be aware of the costs and risks of the exchanged property.

What will be the costs of ownership of the new property? Will insurance costs increase, property taxes go up? Are there association fees? Management fees, deferred maintenance to handle? Are there vacancy issues, long term leases, rent control issues, etc?

Will the time constraints of the 1031 allow the exchange plenty of time to complete? What if a last minute disclosure is uncovered that makes the purchase unsatisfactory?

What are the demographics of the new area? Property values increasing? Employment rate at a solid level? What is the risk of hurricane, earthquake, floods, etc.?

If you own with others, does majority vote carry a decision or must it be unanimous?

If it’s an income property, what is going to be your cash on cash return? Will it be variable or contractual? Beware of high projections that may be significantly reduced after fees and costs of maintenance, improvements, operations, etc.

Consider how long you intend to own the new property.
Know if the area is in an emerging market or a built out section. Are any major developments scheduled nearby that may affect future values?

If this property is to pass to heirs in the event of your death, are they capable of managing it or knowing how to liquidate it in a cost effective manner?

The list above is not comprehensive, but should plant some seeds regarding aspects to ponder before entering into an exchange.

Exchanges are great when all goes according to plan, but can also be a nightmare when unexpected situations present themselves.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at

Monday, September 24, 2007

Bottom Line- Protecting Yourself and Your Investments- Part I

Above all else, when implementing a Capital Gains Tax Saving Strategy, there are three things you need to find out.

How much do I get to keep when all is said and done?
Is my investment protected from loss, or is it an acceptable risk for me?
Is the strategy legal and IRS compliant?

This may seem simple, but the answers are not always obvious. You have to be able to sift through any sales hype and know what is guaranteed and what is simply projected.

The capital gains tax planning industry is dynamic. That means as tax law changes, strategies change. It is inevitable. If your criteria for choice is that a strategy has been around for many years, your choices will be quite limited and perhaps not even a good fit.

Just because a company is fairly new, this reason alone is not cause to dismiss what is being offered. Instead, inquire about the experience of the providers, the structure of the plan, the adherence to law, the protection you receive, and be sure you understand the process and what is involved.

In many cases, fees alone negate any potential extra return. Once you are in a strategy it is probably too late or too costly to switch course.

The next few articles will provide some basic insight on what different strategies entail.

Keep in mind, I don’t believe any strategy is necessarily “Bad”. As long as you understand the ins and outs and it meets your personal goals and risk tolerance, it may be the one for you.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Tuesday, September 11, 2007

Is There a Chance You Will Outlive Your Savings?

In recent surveys one of the biggest concerns of retirees is that they will run out of savings or not have enough money to live on down the road.

Between inflation, health care, long term care, the uncertainty of social security and nonexistent or dwindling retirement and/or pension income, it is a very valid concern.

For many, appreciated assets such as real estate, their businesses, stock portfolios, or professional practices are intended to be the mainstay for retirement purposes.

Often, 20, 30 or even 40 years have been spent in the accumulation phase. The value of the asset has probably increased many times over. It is reasonable to think that this increase is yours to keep when it comes time to sell.

The reality is that depending on the asset and how it is held, 15-50% of your profits might be given in the form of taxes to the IRS, never to be seen again. Can you really afford to lose that much and still survive financially throughout your remaining retirement years?

Even if you can, do you want to?

A common thought is to pay the tax and reinvest what is left over. Sounds good, right? You’ll be back to where you started in no time. Chances are good that you are wrong again.

If you are close to or in retirement, you need to protect this money, as you cannot afford to lose any via a risky investment. There is no longer time to recover large losses because you are not working as much or at all. You also have to realize you will be draining this asset over time to live on, so each year less interest will accumulate.

So, you have to put it in a relatively safe investment. Safe investments tend to have low returns. Often these returns are taxable, so the proceeds are further lowered by income tax. You’ve just given away a good portion of your asset sale to taxes, and now that lump sum goes to work at low interest rates, it decreases over time, and the interest is often taxable.

If it is invested in a less liquid area such as real estate or annuities, you won’t be able to easily access your principle in large amounts anyway. Borrowing equity from a property means making payments to a lender, and where is the repayment money going to come from if you are not working?

Look at how long you have held your asset and how often you have ever needed a large lump sum all at once. The income you received was most likely on a monthly basis all along, either as rental or business income. Don’t forget, if you do need a large sum for some reason, you still have collateral the bank recognizes to borrow against, or you might keep some as cash for emergency purposes.

The bottom line is that you, the seller, often benefit most when you retain as much of the asset appreciation as possible, defer or spread out the tax obligation for as long as possible, and receive a guaranteed monthly income over a number of years or the rest of your life depending on how you set it up. This is the philosophy of retirement plans, pensions, annuities, social security and all other forms of retirement income vehicles.

Ask yourself if it is your goal to have enough money to live on forever, or if you want to face the dilemma of re-entering the work force at an advanced age to make ends meet? That is, if it is even possible due to inevitable health constraints and job availability.

Don’t think with a short term vision. Look far into the future and take steps to secure it for you and your family.

Paula Straub

Fill out a Qualification Questionnaire and find out if you qualify to save capital gains tax at:

Know Your Risk Tolerance

Everything in life has risk. When it comes to finances, whether they are placed into a savings account, cd, the stock market, real estate, hedge funds, etc. there is an associated risk.

The extremes are that the savings account risk is that your money won’t keep up with the cost of inflation. On the other end of the spectrum, the investment could potentially lose all value.

When you are selling a highly appreciated asset, you need to determine exactly what risk tolerance is for the proceeds. This will help determine what course of action is right for you.

Here are just some of the factors that should be considered.

Do you have other assets or is this your only one?
Are you still earning income, close to retirement, or already retired?
Are you comfortable owning stocks, real estate, annuities or fixed rate savings?
Do you need a certain amount of monthly income, do you want to leave the largest legacy or is your intent to be charitable?
Do you need to remove assets from your estate for estate tax planning purposes?
Do you pay too much in ordinary income tax?
How important are guaranteed returns?
Do you understand the benefit of the time value of money?
Are you aware of how leveraging your assets may increase your return potential?
How would a loss of any kind affect the rest of your finances?

Identifying the risk is just the beginning of your decision making process. However, it will narrow down which options allow you to sleep comfortably at night. When all is said and done this is perhaps the most important aspect there is.

Paula Straub

Fill out a Qualification Questionnaire and find out if you qualify to save capital gains tax at:

Let Me Be Your Advocate

Having someone on your side who knows the right questions to ask is crucial.

I think the only thing worse than not knowing the right questions to ask is not knowing if the answers you get are accurate, complete or even truthful.

I run into this same dilemma every time I take my car in for service. Outside of the basics, the mechanic can convince me that I won’t even make it home without an expensive repair because my knowledge of auto mechanics is minimal.

A good solution for me is to bring along a friend who is more familiar with the inner workings of autos. Once the mechanic realizes that he or she is speaking with someone knowledgeable, it is less likely that they will propose a repair that is unnecessary or overcharge.

One of the services I offer my clients is to be their advocate when speaking with an individual making an alternate proposal. I know exactly what questions need to be asked and the answers that should be forthcoming.

All parties involved should be present on a conference call, so there is no “he said, she said” and everyone hears the same thing. On my end, I also welcome anyone the client would like to have present during our discussions, so that any questions they have are also addressed.

Once you have all of the pros and cons of each option, you have the tools to make a truly educated choice.

Remember that as long as whoever you are dealing with is being straight with you, you’ll know you are doing the right thing for your situation.

Paula Straub

Fill out a Qualification Questionnaire and find out if you qualify to save capital gains tax at:

Wednesday, September 05, 2007

Selling Stock Portfolios

Most people typically don't sell huge amounts of stock in a single year unless they need a big loss to offset other large gains.

However, sometimes one has no choice. A common situation is when someone is given or buys stock options for a very low price and hangs onto them hoping the price will really rise.

When this happens, there are times when the company issuing the stock has the opportunity to repurchase these shares or options at a set price. Or, the company is sold and the new company will buy the old shares outright.

Some municipal bonds can also be called if the issuing municipality can refinance the bonds at a lower interest rate. This often makes a sale the best choice, rather than receiving a lower interest rate and reduced income.

So, assuming you sell these assets for more than you originally paid for them, you are faced with a capital gain and capital gains tax.

If the amount is significant, it often behooves you to put a tax savings strategy in place before the sale happens. The Charitable Installment Bargain Sale lends itself well to this situation.

For instance, a million dollar stock sale launched an immediate 337K tax deduction, forgiveness on 55K and a 15 year payout of $92,657 per year for a total of $1,389,859. If tax had been paid at time of sale, it would have totaled around 243K. This tax repayment can now be deferred over 15 years, so nearly one quarter of a million dollars continues to work for the seller earning interest.

The tax deduction also is enough to reduce the sellers income tax bill by 30% over the next six years, resulting in significant additional savings.

The key, as always, is in knowing what options are available and initiating a beneficial tax strategy prior to sale.

Paula Straub

Fill out a qualification questionnaire and find out if you qualify to save capital gains tax. Go to

Thursday, August 23, 2007

Business Lending- Have Funds Dried Up?

The last post was on how the tightening credit market is affecting sellers of residential real estate. Now here is what I am seeing regarding commercial financing for business purchases.

I have several clients in various stages of selling their businesses. The reasons for sale vary from retirement to having an offer come from out of the blue, to exiting one business to begin something new.

I am seeing requests for due diligence become longer than in the past, and I believe in some circumstances this is in part because it is becoming more difficult to raise the necessary capital to complete the buy.

In one incidence, an employee wanted to purchase the business from her employer. The business was successful, she had the right experience and skill to run it, and it had been established in the community for 26 years. She had good personal credit, but she was unable to find any lender to issue the funds. There have been two other parties interested in the three months since, but none have come forth with the capital to date.

Another case finds a younger owner who was approached by a large corporation with a proposal to purchase his successful business which he began about 10 years ago. The offer was so strong he couldn't refuse and the purchaser promised a sales contract within a couple of weeks. That was 4 months ago. Every time I check in, the buyer is still interested, but is saying they are taking longer to get the funding together than expected. They have provided some earnest money, but being in limbo is very frustrating.

There are still plenty of buyers with existing capital to make business purchases, and I believe the sales in the examples above are going to happen, just not in the time frames that were initially outlined.

There will always be transactions happening. A bit more patience is now often necessary.

Next: Selling stock portfolios

Paula Straub

Fill out a Qualification Questionnaire to find out if you qualify to save capital gains tax.

How the Lending Crunch Affects Sellers

I'm sure you've been seeing all the stories about mortgage lenders cutting jobs, filing for bankruptcy, and tightening the rules on new loans. It is indeed a mess.

If you are selling an asset- how does this affect you? The next couple of posts will give examples of what I am seeing on a weekly basis.

First are those selling residential real estate. Properties that were previously selling typically within a month are now taking much longer. Often times, even when an offer is made and accepted, the financing which the buyer supposedly qualified for falls through before close of escrow and the process begins all over again. There is a lot of "hurry up and wait".

Prices are being reduced and saving capital gains tax becomes even more important for those who need to sell. Others, who have less pressing needs are deciding to re-rent if this is possible and a few are offering seller financing.

This too shall pass, as all forms of investments surge in some cycles and decline in others. It's a reminder that diversification is critical to any financial plan.

Next - selling businesses

Paula Straub

Fill out a qualification questionnaire and find out if you qualify to save capital gains tax.

Tuesday, July 31, 2007

Case Study of Multiple Taxable Events in Same Tax Year

Recently I had a case where the same gentleman- I'll call him Joe- had two separate capital gains triggering incidents happen in the same tax year.

The first was a re-finance of a previous owner carry-back mortgage which triggered the remaining amount to be repaid in full prior to the end of the installment agreement. For several years he had been spreading out the capital gains tax and repaying it as he received principle through the payments made by the buyer. The amount of gain distributed and taxable at the end was about 400K.

The second event was also the result of an installment agreement issue. The buyer had been having trouble keeping up with the payments and foreclosure was the next logical step. A new buyer came to the rescue and agreed to pay off the remainder due from the original installment agreement plus the penalties assessed. This still meant receiving the remaining amount due as a lump sum and this was also about 400K..

It was too late to defer any capital gains tax in the first scenario, but not in the second. Joe did not need to keep a large lump sum, but did need an income stream to replace the payments he had been receiving monthly since his original sales.

So, the best solution was to do two Charitable Installment Bargain Sales. One with 300K cash and one with the remains of the second transaction.

What this accomplished was to give Joe almost a 200K tax deduction to reduce the amount of tax he was going to have to pay from the first transaction. He was able to cut it in half. Then his monthly income will be about $6500.00/month for the next 12 years. He is now 82. The way it is set up, each year those payments become less and less taxable.

Joe also has 100K from the proceeds to pay what taxes are due and put some in the bank for a rainy day or emergency.

If he passes on before the end of the 12th year, his heirs will receive the remaining payments.

Each case has a different solution depending on what there is to start with and what goals you wish to meet. Be sure and find out what your options are, or you may only have one- pay the tax in one big lump sum.

Paula Straub

Fill out a Qualification Questionnaire to see if you qualify to hang onto your capital gains.

Monday, July 23, 2007

Results of Very Non-Scientific Poll

Several weeks ago I sent out an email regarding a case where potential clients had decided it was just easier to pay over 900K in taxes than worry about executing a tax saving strategy.

I asked my readers for any responses as to whether or not there was a certain amount of money one had to have in order to not make an effort to protect close to one million dollars.

I was actually hoping someone might reply in the affirmative and tell me why they felt that way. 100% of the responses I received all stated that no matter how much money they already had, it was worth it to them to hold onto as much of that 900K+ as they could.

After reviewing all the email replies, I realized I was hearing only from a very select savvy group. After all, those who read my emails and educate themselves on protecting their assets are the ones motivated enough to send in a reply.

I doubt anyone not worried about a mere 900K going to the tax man is even on any of my email message lists. I'm also thinking anyone on the fence probably isn't going to speak up and write to tell me they have more money than they know what to do with.

So, my poll really wasn't unbiased afterall. Thank you to all who took the time to send a comment. I hope to be able to assist you in the future keep as much of your asset as possible when it's time to sell.

You are the ones learning how to protect what it's taken so long to build and I'm with you all the way!

Paula Straub

Fill out a Qualification Questionnaire and see if you qualify to hang onto your capital gains.

Tuesday, July 10, 2007

You Will Shoot Yourself in the Foot and Your Advisor Will Help

This isn't my first message regarding "advisors" who harm clients by thinking they know more than they do. It is probably one of the most frustrating things in my work and it doesn't have to be that way. The solution is obvious.

When dealing with Capital Gains Tax Strategies, it is safe to say that 98% of all the attorneys, tax professionals, financial planners and real estate brokers in the US are not up to speed on what is currently available or how to compare the options. This is not the problem. I wouldn't expect them to be, anymore than I would be up to debating how to file tax returns or do the legal contract language for a trust.

The problem is that when a client comes to them for help on a capital gains tax issue they hand out advice without having all the facts. And they often get paid a lot for this bad practice. That is just wrong.

I can say this definitively, because I see it happen almost every day. There is a simple solution to make sure this does not happen to you. Here it is.

When you are exploring your Capital Gains Tax options for your asset sale, be sure your advisor hears the same thing you do. They should know your financial situation. If they are in on the discussion process from the beginning, they can voice their concerns or offer what they think is a better solution. You will hear the conversations from both sides and can draw your own conclusions.

If they advise you not to do something before they bother to look at the benefits, they do not have your best interest at heart.

I do not respect any advisor who refuses to have a conversation with all parties. Period. They usually have their own agenda and it's not to help you.

Ask yourself: "Why would I trust the advice of someone who didn't offer me these options to begin with and won't take the time to discuss them if there is even a chance it will be the best strategy for me and my family?"

If their concept of how to proceed is truly best, why wouldn't they jump at the chance to show "how knowledgeable" they are and confirm why the client should take their advice?

I am always receptive to hear another professional's opinion and will yield to any better suggestion or plan that benefits my client. That new insight allows me to help future clients even more effectively.

If your other advisor doesn't think along those same lines, how exactly are they helping you? They are doing you much more harm than good, and you probably don't even realize it.

I probably sound like I'm ranting a bit, but I see too many people taken advantage of by someone they should be able to trust to act in a fiduciary capacity. It is you, the client, who suffers.

Paula Straub

Fill out a Qualification Questionnaire to find out if you qualify to save capital gains tax. Go to

Thursday, July 05, 2007

No Capital Gains Tax in 2008?

If only that were true... It is true that the capital gains tax rate for low income tax brackets (10% and 15%) in 2008 goes to 0%.

But, before you run out and plan to sell your rental with a 300K gain, be sure you understand that most of that gain will not be taxed at 0%. Bummer, I know...

We don't know what the qualifying incomes are for 2008, but for 2007 they are up to $31,850.00 for individuals and $63,700.00 for married couples filing jointly.

So, if the levels didn't change for 2008 (they usually go up slightly each year) and you are married making 50K/yr as a couple, only the first $13,700.00 of capital gain is taxed at 0%. The remainder is taxed at 15%. So, in the above example, $286,300.00 is taxed at the 15% maximum long term rate.

Don't forget to add your state and/or city taxes into the equation as well. This can easily add another 5-9.5% depending on your state of residence and state of property sale.

And, don't forget the recaptured depreciation tax This doesn't get the 0% break either.

So, don't plan on reaping the entire profit tax free in 2008 if you have a large gain. The IRS isn't quite that generous!

Paula Straub

Fill out a Qualification Questionnaire at to find out if you qualify to hang onto your capital gains.

Wednesday, June 27, 2007

Marital Primary Residence Exclusion on Death of Spouse

I’m often asked whether the 500K marital exclusion carries over upon the death of a spouse. The answer is not always straight forward.

Typically, if both spouses owned and lived in a home for at least two of the last five years and file a joint return, there is a 500K exclusion on capital gains tax when the house is sold.

If one spouse dies and the house is sold in the same tax year, a joint return can still be filed and the exclusion taken. Otherwise the exclusion drops to 205K for the remaining spouse.

However, other tax rules may come into play.

If the deceased spouse passed their portion of the home to the surviving spouse, in most cases the surviving spouse receives a step up in basis for the half they just inherited. So, if the house was purchased for 100K and each spouse owned 50%, each have a cost basis of 50K. If the house is valued at 400K when the first spouse passes away, their half is now stepped up to 200K, so the remaining spouse now has a new cost basis of 250K.

Also, if the couple lives in a community property state, the remaining spouse may qualify for a 100% step up in basis if the property is titled as community property with rights of survivorship.

Rules vary from state to state, but finding out how you would be affected if you are married and your spouse passes away is crucial. It is a discussion every couple should have, as it is certain we will pass on and we commonly don’t have a say as to when this will be.

Most couples have no idea how the death of their spouse will affect their financial future. Children with aging parents should also take an active role in making sure their parent’s affairs are in order.

Paula Straub

Fill out a qualification questionnaire and find out if you qualify to hang onto your capital gains.

Monday, June 25, 2007

Q and A Regarding "Intent" and the IRS

When it comes to taxes, the IRS does often look at “intent” to determine whether certain things qualify for certain tax rules.

Such as, when you purchase a property, do you intend to hold it for investment purposes or is your intent to fix it up and sell it right away?

I got a question today from a military individual stating he had purchased a property that was “going to be” his primary residence, but he had never lived there and had rented it out since purchase. He had been renting in another state for the last few years.

Now he wants to sell and wanted to know if he can qualify for the personal residence exemption.

Unfortunately, he can’t. To satisfy the test for exemption you have to both own and reside in a primary residence for at least 2 of the last 5 years. Intent to live there does not come into play unless you actually do.

And, no, it also doesn’t matter if he sells the “intended” house and buys a new primary residence and lives there immediately. He still doesn’t qualify for the exemption.

One possible option, if he is patient, is to do a 1031 exchange on the property he is selling and purchase a home he would eventually like to live in. If he rents out the new place for a couple of years, and then moves in, he can eventually (after 5 years) in this case, qualify for the personal exemption when he sells.

Paula Straub

Fill out a Qualification Questionnaire and find out if you qualify to hang onto your capital gains.

Wednesday, June 20, 2007

At What Point do You Need to Have an Exit Strategy in Place?

If you have an asset such as a business, a stock portfolio, real estate or a pricey collection it is never too soon to educate yourself about how you plan to exit or sell. Although a lot may change before the actual sale, you never know exactly when some unforeseen event may trigger the need to sell.

As to how soon you should have a specific strategy in place, the answer is definitely prior to close.

Below are some of the main considerations which need to be taken into account.

1. Your age now and your age at time of sale
2. The amount of gain you will potentially realize and the amount you’d owe in taxes if you had to pay at time of sale.
3. Your need for income- now or in the future
4. Whether or not you are at a point in life where you can invest the proceeds in anything with risk of loss or if you need asset protection.
5. Your needs to provide for your heirs.
6. Your estate planning needs and charitable intent, if any.
7. Any other income and assets you have and how the sale of the one in question might impact the rest.
8. The manner in which title is held and if the proceeds must be divided.

There are a lot of important factors with each unique situation. You need to work with someone who not only keeps up on the ever changing tax laws, but who also has the ability to guide you in the right direction that will meet your goals and make sure everything is done right.

There are good educational resources available at if you’re in the research stage.

If you have a current sale pending, fill out a Qualification Questionnaire at and find out what you need to get started on right now.

Paula Straub

Wednesday, June 13, 2007

Is 960K a Lot of Money to Write a Check For?

Occasionally I have a case that gives me pause. I have to wonder at what point loss of money is no longer important to some.

I’d like to hear some opinions from my subscribers. After you’ve read this article, if you would, drop me a quick email to and let me know how you decide how much is too much to pay in taxes- assuming you have a solid alternative.

My recent discussions were with a son regarding the sale of his family business. His parents were the only stock holders so they made the final decision. They were in their early 70s and about to retire. Both are in good health.

The business had a gain of about 3.2 million dollars and the tax bill was going to be approximately 960K. Real estate was involved, so recapture of depreciation was also an issue.

The son was concerned about losing that much of their profits, so he was doing some research on how they could minimize their tax burden. Any way we looked at it, it behooved them to do something rather than nothing. Their options were all very good.

To make a long story short, the parents decided they would just sell and pay the taxes due. Granted, paying taxes is everyone’s right and Uncle Sam will be very happy to receive close to one million dollars in a nice lump sum. (I just wish it was put to better use once collected)

Although 2.24 million (after taxes) is certainly a grand profit, I can’t help but think the 960K tax bill is way to much hard earned money to part with. Here are some thoughts that keep me in a quandary.

The parents had more than enough to live comfortably with the after tax proceeds. But, since they have children and grandchildren, it would mean a much larger legacy for their heirs if they paid less in taxes and left more at their passing.
If they didn’t care about their heirs, what about earmarking that money for a charity with a good mission? It could have made a significant contribution towards disease, poverty, spiritual enrichment, global warming, etc.
The after tax money still has to be invested somewhere. Their intent was not to begin long term real estate accumulation or gamble in the stock market at their age. If placed in taxable investments with principle guarantee for safety, this means a fairly low interest rate, and what they need to live on is taxed at ordinary income tax rates when withdrawn. So, why not have spread out the tax burden, and be taxed at mostly capital gains tax rates vs income tax rates and increase their lifetime income as well?
This money is still also in their taxable estate. It is subject to creditors, medical expenses, and possible estate tax when they pass.
Even keeping out a large lump sum and reducing the taxes due on it with a tax strategy and spreading out the taxes on the remainder over a number of years would make a lot of sense.

My only conclusion is that to some individuals, once they have a certain amount of money, paying a large tax really doesn’t seem that burdensome. To me, no matter how much I have accumulated, I don’t see myself paying close to one million dollars if I have a valid alternative. I bet Donald Trump or Warren Buffet would agree.

Drop a line and let me know if, in the same situation above, you would have paid the 960K and have been done with it, or if you would try and keep as much of that working for you for as long as possible.

Is there really a point where money doesn’t matter?

I’ll keep a tally and send out the results in a future email.

Paula Straub

Fill out a Qualification Questionnaire and find out if you qualify to save capital gains.

Monday, June 04, 2007

5 Common Mistakes People Make When Selling Their Highly Appreciated Assets and How to Avoid Them

You may have spent many years of your life waiting for your real estate, business, practice, stock portfolio or collection to grow in value. Then, the time comes when you are ready to sell. You find a buyer, negotiate a fair price, and then lose 15-45% of your gains to Uncle Sam, the average being about 25%.

The good news is that you have choices to avoid a good portion of this loss. You can also avoid the following mistakes I find most common amongst less savvy sellers. Below are just a few.

Mistake number 1: Not having a plan in place prior to sale. Worse yet, not even knowing you have multiple options available to you.

Mistake number 2: Getting your financial and tax planning advice from someone not qualified to provide it. Chances are, your hairdresser or golf buddy don't keep up to date on this type of specialized subject. Yet, I see time and time again, people relying more on the opinion of a relative or acquaintance than on the experience of a specialist. If Uncle Joe is the one making the choice for you at least bring him into the loop at the beginning so he hears the same information you do and can have his concerns addressed.

Mistake number 3: The misconception that you must have "total control" of your asset of all times. The IRS has specific rules that in order to defer or spread out repayment of capital gains, most strategies require that you are not able to be in full control of your asset and still enjoy tax benefits. Your control is in setting up a plan that will meet your needs over the period of time you choose. Social Security or a Pension plan pays you over time and with a payment you can rely on receiving. The same concept applies here.

Mistake number 4: Forsaking safety for the unrealistic "big score". Unless you are at a point in life where you can gamble your principle, this is not the time to think you will get double digit returns each and every year without the very real risk of major loss. If you don't have a time horizon of at least 10 years before you need to access any of the funds to live on, this is the time to protect yourself and insure against loss. Keep a portion aside if you still want to play the odds.

Mistake number 5: Doing nothing for fear of making some sort of mistake. This is not to say jump into something you don't understand. Instead, take the time to understand the pros and cons. Ask the questions you are most concerned about and be sure you have received answers that make sense and make you feel comfortable before proceeding ahead. Get a second opinion from another qualified source, but make sure everyone talks to each other instead of one "professional" bad mouthing the other with misleading facts. Be suspicious of anyone not willing to joint conference to present their view and address their concerns. Your advisor should always put your interest first.

Do be proactive. Do consult with someone who specializes in this area. Be honest about your major concerns and don't be afraid to ask questions until you are satisfied with the answers. A good plan will save you a lot of money, protect you through your retirement years, and provide the security your asset sale was meant for.

Paula Straub

Fill out a Qualification Questionnaire and find out if you qualify to save capital gains tax.

Thursday, May 24, 2007

Case Study - Sale of LLC

Sometimes one does not have control over when their asset is sold. This was the case of a 54 year old woman recently.

As part of a divorce settlement she was awarded a percentage in her former husband’s LLC which held a shopping complex. She was a minority shareholder, so had no decision making clout.

For years her only income was her share of the rent which was about 45K/year. She only worked sporadically part time so this was what paid the bills. Then one day she was told the property had sold and would close within the week.

Her share would amount to about 1.2 million dollars after costs of sale, and her tax bill would be approximately 360K. That is almost 1/3 of her asset. Of course she went into panic mode and didn’t have a lot of time.

We were able to put together a plan where she kept out 200K (and had a big tax deduction to minimize the taxes due at sale). This was money to keep and reinvest. The other 1M would go through the Installment Sale through a Foundation.

This triggered a large tax deduction ($1,429,891.40) she could enjoy for the first 6 years, partial forgiveness of capital gains tax ($24,548.47) and recaptured depreciation and a guaranteed income stream for 40 years of $55,195.68 annually which would become increasingly less taxable each year.

This guaranteed her income until age 94, gave her money to invest outside of the sale for additional future income, and reduced her taxable income by 30% over the next 6 years.

Even though the majority share holders went their separate ways and did their own thing, it did not mean this minority shareholder was obligated to follow suit.

If you find yourself or someone you know in a similar situation, give me a call and let’s explore your options.

Paula Straub

Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax.

Wednesday, May 16, 2007

Clients Lose Millions With Qualified Intermediary

I got an alert on an article today from San Jose, CA. The subject was a Qualified Intermediary that somehow absconded with millions and millions of dollars in clients 1031 exchange funds.
Here is a link to the entire article:

These are people who have been in business for a long time. It seems almost impossible to believe this can happen, but it shows that you need to know what questions to ask before entrusting your funds to anyone. It comes back to- how do you know what to ask if you don’t know?

Shopping for the lowest cost QI is acceptable if you are comparing apples to apples. Here are some basic questions.

1. Is my money held in a separate account that you cannot access except for the exchange transaction?

2. Are you insured and bonded?

3. Do you pay interest on my money while you hold it?

4. What assurances do you have in writing that if something happens to your company my money is still intact and not accessible to you to secure loans directly?

5. If your doors close tomorrow, is my money protected and available to complete my transaction on schedule?

The article doesn’t say how the money was invested such that the owners could borrow against it or not have the funds segregated and able to be drained.

There are many great Qualified Intermediaries out there, but some bad apples as well.
Make sure to arm yourself with the knowledge that your proceeds are safe and that your exchange will not be disqualified with late payments or heaven forbid lost altogether by unscrupulous owners!

Paula Straub760-917-0858

Fill out a Qualification Questionnaire to see if you qualify to save capital gains tax.

Tuesday, May 15, 2007

Case Study of Company Stock Sale

This is a case study of how a Charitable Installment Bargain Sale can be used to minimize taxes on the sale of company stock held in a company 401K plan.

A 60 year old gentleman had a large amount of company stock in an old 401K plan with his former company. He had left several years ago, but kept the stock in his old plan.

Now he is ready to retire, but if he rolls the stock into a traditional IRA and sells it, he will pay ordinary income tax on the entire amount.

His cost basis in the stock is 70K. The stock value is now worth over 1 million dollars. He has other income, but not quite enough to maintain his lifestyle. Any distribution would be taxed at about 37% between state and federal taxes. That's almost 40 cents on the dollar that would go to Uncle Sam.

So, here is a solution that makes a lot of sense.

He has a one time shot, since the stock is in a 401K plan, to pay ordinary income tax on his cost basis and get the stock out of the plan. This means that for about 26K (income tax on 70K) he now has control of his stock.

When he sells the stock, he will pay capital gains tax on the sale instead of ordinary income tax. So now, his tax rate drops to 24% vs 37%. That is great in and of itself, but there is more.

This gentleman is at a point in life that he needs to protect his principle and not leave it open to the fluctuations of the stock market. He doesn't need it all at once, but needs a steady, reliable stream of income for his retirement.

Through a Charitable Installment Bargain Sale, he is able to get an immediate tax deduction to lower his income for the next 6 years (and also offset most of the tax immediately due on the cost basis of his stock), and he is able to get a partial forgiveness of the capital gain forever as well as a guaranteed income stream for either 20, 25 or 30 years. He pays the remainder of the capital gains tax in small amounts as he receives the payments, and the bulk of the money continues to earn interest for him.

As always, there are specific IRS rules to be followed and each case is unique. A complete review of your total financial picture should always be done to determine the best plan for you.

Paula Straub

Fill out a Qualification Questionnaire to see if you qualify to hang onto your capital gains.

Monday, April 23, 2007

How to Know What to Share and With Whom

It goes without saying that one should not divulge personal information to strangers. With all of the identity theft going on in this crazy world, one can't be too careful.

However, there are times when sharing the information necessary to help yourself, your company or your family is not only practical but crucial.

If you are going to go to a CPA to do your taxes, they need to know your complete financial picture to do their job properly. If you hold back information, you are the one who gets hurt.

If you go to an attorney for legal counsel, you must disclose the facts as you know them so they will be able to do their job properly.

When seeking capital gains tax advice and counsel, it is important to know what legal structures are in place and how the sale of your asset will affect the rest of your financial picture. I have the same responsibility as your CPA and Attorney as far as confidentiality and protection of your personal data. Without the proper numbers, I can't provide you with accurate solutions.

I do not replace your CPA and Attorney. I work with them to be sure your interests continue to be taken care of even after the sale of your asset.

So, instead of having your current advisors tell you not to disclose any information to someone they or you don't know, let's all get to know each other so everyone is on the same page.

Any CPA or Attorney with your best interest at heart will take the time to have a conference call and put any of their concerns to rest.

In my opinion, it is the advisor who will not take the time to investigate the specialist trying to help their client protect his or her financial future that is doing the ultimate disservice and whose motives should be questioned.

Paula Straub

Fill out a Qualification Questionnaire to see if you qualify to keep your capital gains.

Monday, April 16, 2007

Things That Make Me Go "Huh?"

Sometimes I just have to shake my head and chuckle.

I get alerts for news articles and press releases that concern capital gains so I can keep up on what everyone is doing and publishing.

Today there was a Press Release put out by one of the larger Structured Sales companies. The title had something to do with How Older Women and Widows were now inquiring about the Structured Sales Concept for 1031 Exchanges.

That was confusing enough, as the two are mutually exclusive. Farther down in the article they did mention the Structured Sale was in lieu of further 1031 exchanges.

Then they gave an example. One might think they would use an example of an older woman as the article title implied, but they used a daughter selling her Dad's second home to pay for his medical nursing care.

The daughter was "brought to tears" by the concept of her dad getting 10 years of payments totaling 300K (however, no mention was even made of the amount at time of sale for comparison).

Then came this sentence: "A traditional 1031 exchange would require the capital gains tax be paid in the year of sale."

This is what made me say "Huh?". A traditional 1031 exchange means you get to defer all capital gains taxes until you stop exchanging and sell outright. Is that what they really meant to say? Is it just me they confused?

Besides, the example was for a sale of a "second home" that didn't even qualify for a 1031 exchange in the first place!

I really feel sorry for people who are facing a capital gains tax dilemma for the first time. With so much contradiction in articles, press releases and general information on the subject - how is a novice supposed to know truth from inaccuracy?

When doing research it's a good idea to write down anything you find that is puzzling or contradictory. The correct answer is easy to find if you know where to look and a good advisor can prove their responses without back peddling.

Paula Straub

Fill out a Qualification Questionnaire to see if you qualify to save capital gains tax.

Friday, April 13, 2007

Case Study Of What Not to Do

I recently had a call from a real estate agent who was in a panic. She had an 82 year old client who had called her in tears. Here is what had happened.

The client (I'll call her Susan Seller) had engaged the real estate agent (Rita Realtor) to sell an investment property for her in the Spring of 2006. Rita did exactly this and collected her commission without asking any questions about what Susan would do with the proceeds. Susan had approximately 280K in gains.

Susan took the check from escrow and placed it in a 6 month CD. She had never sold property before and was unaware of the tax consequences.

When the 6 months were nearing an end, Susan called Rita back and asked her to look for another investment property for her that was in the price range of her last sale.

Rita found a property for her in early 2007 and collected another commission, still not ever discussing the funds involved. Susan used the entire amount from the last sale, plus the interest from the CD and about 10K of her savings and purchased the property outright.

The second week of April Susan went to her accountant to do her 2006 tax return. The accountant told Susan she would owe upwards of 80K in capital gains tax, recaptured depreciation and extra income tax from the CD earnings.

Susan didn't believe that was possible because she hadn't spent a penny of the earnings except on the new property. Since she had employed Rita for both the sale and the new purchase, she believed that Rita would have mentioned the tax problems since Rita was aware of what she was doing.

So, Susan was furious and called Rita to see if there was some sort of mistake. Susan no longer had the money to pay the 80K tax bill. It never crossed Rita's mind to talk to her clients about what effect their sales and purchases could have on their taxes. Rita didn't know herself.

I gave Rita the bad news that Susan didn't have any choice but to pay her taxes. She will have to take out a loan either against her personal residence or the rental. This means the rental income that she was counting on to support herself will be used in good part to make payments on the new loan.

The extremely sad part of this story was that all of this could have been totally avoided by either doing a 1031 exchange or structuring the sale to minimize the tax burden. At the very least, Susan could have kept the proceeds in an account until the tax return and paid her tax consequences with the cash on hand.

Rita Realtor just lost herself a client and you can bet Susan Seller will be telling everyone who will listen about her bad experience.

All Rita would have had to do was ask a simple question when helping Susan with her first sale. She could have asked Susan what her plans were after the sale, informed her that she should talk to someone who could explain the tax consequences and options available because they may be significant if not handled properly, and given her the name of someone who could help.

Real estate sales persons and brokers don't have to be tax experts, but if they take that one extra step to show they have their client's best interest at heart, they will earn the respect and appreciation of their clients and never put themselves in the position of having to explain why they never disclosed the tax consequences on a sale.

I guarantee this is a lesson Rita Realtor won't soon forget!

Paula Straub

Fill out a Qualification Questionnaire and see if you qualify to hang onto your capital gains.

Wednesday, April 11, 2007

Is Gifting Real Estate A Good Idea?

I receive a lot of questions regarding gifting real estate as a means to pass along property prior to death and remove it from the estate.

In theory it sounds good, but in many cases it does not accomplish what the giftor intended. Here are some things to consider before taking any action.

  1. When you gift real estate the person receiving the property inherits your tax basis and /or depreciation taken. So, if you paid 100K for the property and it is worth 500K, the recipient will owe taxes on 400K when they sell.
  2. If you are giving the gift to remove property from your estate, you have to realize you may have to pay gift tax. You have a maximum of 1 million dollars to give during the course of your lifetime without paying gift tax. Once that amount is exceeded, it is you who will have to pay the tax on each gift. (There is an annual amount of 12K that can be gifted to any one person without counting against your maximum lifetime gift amount)
  3. If you are trying to remove property from your estate so you will qualify for State or Federal assistance for medical care or a nursing facility, there is now a 5 year look back period. This means that if you didn't give the property away at least 5 years prior to when you need to qualify for assistance, they count it as if you still have the money and you won't qualify. This is to prevent individuals from wiping out their estate for the express purpose of qualifying for government aid.

Of course, there are times when gifting does make sense. It really depends on the individual situation and goals. Before doing anything you might later regret, consult with a professional who can explain the ins and outs. It is very possible the desired results can be attained using a different approach.

Paula Straub 760-917-0858

Fill out a Qualification Questionnaire to see if you qualify to hang onto your capital gains.

Tuesday, April 10, 2007

Red Flags to Beware of From Your Advisors

Tax time is drawing near. Never is the desperation more apparent than this time of year when panic sets in as April 15 (or 17th in 2007) fast approaches.

I estimate 4 of every 5 phone calls and emails are from those filling out tax returns and learning of the exact amount of taxes they have due. Many panic from having had no guidance prior to the sale of their asset in the previous tax year, but just as many are irate due to having had bad counsel.

In almost all cases, the amount they have to pay is much greater than they anticipated or were told. Most don't have the excess funds readily available and are desperately trying to find a way to defer their tax burden now due.

So, I've compiled a list of some of the most frequent scenarios I hear and where the initial problem started, often due to bad or inaccurate advice.

Consider these red flags if you find yourself selling an asset, and at least seek a second opinion before proceeding if you are told something similar.

1. From financial advisors: "Just pay your taxes and give me your proceeds to invest. I'll get you double digit returns and you'll be ahead in no time".

2. From Attorneys: "Let me evaluate the situation. That'll be 10K for my research and recommendation." No doubt the solution will be some sort of expensive trust or other fee for service plan and additional fees will be required to implement it.

3. From CPAs or other Tax Professionals:
  • There is no solution but to pay your taxes
  • You'll only have to pay 5% capital gains tax or at the most 15% so why consider anything else? The tax rates will never be lower (not usually true and due to lack of knowledge on how to calculate capital gains)
  • I don't have time to research that plan. I'm just too busy.

4. From anyone you go to for advice:

  • Either "I know all about that and it's not not a good idea" (without a solid reason why or without being able to explain the strategy in question), or "I've never heard of it so it must be a scam of come sort" (again without being able to explain why)
  • "My Uncle Milt had a bad experience with the IRS. It's better to just take the hit and not have to deal with them down the road" (Problem usually totally unrelated and caused by other source of bad advice)
  • "If you just take the lump sum up front you'll be in control of the money and you can do whatever you want with it. You can take that trip or invest it in the stock market"

5. "Whatever idea someone else presented to you is not right. This (whatever they are selling) is the only way to go. There's no use even discussing it further - you'll be sorry if you don't do what I'm offering you. There is no need for all parties to get together and talk. The other party is full of it"

Now, here are some of the things you want to hear from an advisor:

  1. I haven't heard of this plan, but I'd be interested to know more. If it makes sense and is better for your situation I'm all for it. It may even be something I can use to assist other clients in the same dilemma.
  2. I believe my plan is better for you. Let's set up a conference call with all parties and discuss the advantages of each so you can hear both sides and make an informed decision.
  3. I'm not familiar with this. Do you mind if I contact the other party and find out more about it so we can make an informed decision?
  4. Here are a list of questions I have concerning what you have shown me from the other party. If they can be answered to my satisfaction I will feel comfortable recommending the plan.

It is hard to know who to go to for advice and who to trust. I can usually tell if someone has my best interest at heart by how they answer my questions and how they use facts to support their proposal versus just blowing hot air or invoking fear for no reason.

If a professional has a plan they feel is in the best interest of their client, they will have no problem explaining and comparing the benefits of an alternate proposal. If all parties can hear both sides simultaneously, the party will the superior plan will become apparent.

Everyone can always stand to learn something. Anyone who thinks they know it all is usually the most ignorant. Just my two cents.

Don't let yourself be scrambling before next year's tax return and wishing you had done more before the sale to lessen your tax bill. It will be too late.

Paula Straub


Fill out a Qualification Questionnaire to find out if you qualify to hang onto your capital gains.

Monday, April 02, 2007

Minimizing Sometimes Possible Even After the Sale

Recently, I was presented with a fairly unusual scenario. A man in New York City was paid 500K as a buy out on a rent controlled lease. He'd been there 20 years and was one of only 5 tenants left in a building on prime land where the owners wanted to tear down the building and build a skyscraper.

The buyout was actually considered as a long term capital gain, even though the tenant never owned the real estate. Money had already changed hands, so a taxable event had occurred. It was too late to defer capital gains tax, but not too late to minimize the tax burden due to the best extent possible and still have him meet his goals.

Here was the plan I presented to him. His goal is to use the money to buy a primary residence, and the means is to do a Charitable Installment Bargain Sale using cash.

"If you pay your taxes, you'll owe a little over 25% of 500K or about 125K. So you either start with 375K left over and use that as a down payment on something or strategize for something better. If you put it into real estate, the 375K doesn't earn interest, the equity increases just as it would whether or not the property was financed to a greater extent.

The example attached shows keeping 100K and putting 400K through the public charity in exchange for 507K back over 15 years plus an upfront tax deduction of 216K .

By using the tax deduction, you will reduce your capital gain due by 43% (the 216K deduction) so you will owe about 71K vs 125K. The 100K kept out more than covers your tax bill and leaves you with some to spend. You could use the 29K for a down payment.

The illustration is for 15 years, but can be shorter or longer. Here, you get almost 3K per month for 15 years. This should be enough to pay any mortgage off in the 15 year period if you want to buy a place. This also gives you a mortgage interest deduction to further reduce your taxes and 100K more than you put in back as payments. Most of the payments received will be income tax free, as it is a return of cost basis. Only the interest component is taxable. The funds are also protected from creditors during payout.

You save an immediate 54K in taxes and get basically a rent free place to live that's paid off in 15 years, as well as lower income tax bills and the appreciation which will also be tax free up to 250K.

Let me know if this makes sense to you. I think it really puts you way ahead of paying a lump sum and gives you a steady income stream (mostly tax free) you can depend on and a roof over your head that is basically paid for in total."

The capital gains could have been spread out over the 15 years if a strategy had been put in place prior to sale, but in this case, even after the fact a plan makes a huge difference.

Paula Straub

Fill out a Qualification Questionnaire to determine how you can save capital gains tax.

Bad Advice Can Really Break You

As I've said before, the calls I dislike the most are from those individuals that have already sold their asset and are desperately trying to figure out a way to reduce their capital gains tax.

My business is not really driven by any particular event, such as tax filing time, but it is from February to April that a lot of people actually realize what their tax consequences are and panic.

In most cases, it is too late to do much but pay the piper. The tragedy is, the money is not always there to cover the bill.

A fellow in Florida sold a rental property last year at a nice profit. He had paid about 70K four years ago and sold for 800K. He owned it with another family member, and both had put quite a bit of money into fixing it up, and had taken out a number of high interest loans to finance it.

His tax preparer had told them they would only owe 5% in capital gains tax, so they each set aside 20K for taxes. After paying off the loans (including a large balloon payment), they each had about 120K left over.

Now with tax deadlines approaching, this same tax preparer has called them back and told them he was wrong in the estimates. What he didn't realize at the time he originally advised them, is that only a small portion was going to be taxed at 5% , and the majority will be taxed at 15%. He also neglected to mention the recaptured depreciation that will also be due, taxed at 25%.

They each will owe more than 40K in additional taxes come April 17. Neither party has this amount left over from their proceeds. They thought they were free to spend the amount left over after they set aside the original 20K. Luckily, they live in a state where there is no state capital gain tax or their problem would be even greater.

They will have to take out loans to pay the tax bill. All this could have been avoided had the right advice been given from the get go. The time to do research and seek specialized counsel is before the sale happens.

Paula Straub

Fill out a Qualification Questionnaire to find out what options you have to save capital gains tax.