Peter decided to take a lump sum of approximately 500K, pay his capital gains and depreciation recapture of close to 150K and invest the 350K he had left over after the sale of his investment property. Peter was 64.
Peter paid off credit cards and bought some purchases he had been putting off such as a new car and gave some money to his kids and put the remainder into some investments his financial advisor recommended. That was two years ago.
Peter is now out of work and has been selling stocks and mutual funds at a loss to cover his bills. He lost a good deal in value on his investments over the last year. He has about 120K left of that 350K and it is dropping fast.
If Peter had taken a 20 year income stream from a self directed installment sale, he would be receiving about $3500.00 per month or 42K per year for another 18 years. After paying his taxes on this it would still be about $2450. per month he could count on coming in.
If he had simply used this income to pay off his credit cards over the last couple of years he would be out of debt. He may not have the new car or his kids may not have gotten the monetary gifts but he would have an ongoing source of income when he lost his job and would have a means of support going forward if he is unable to find another.
His investments would not have lost value and over the 20 year period he would have received about 110K more using the compounded earning power of the money that went immediately to taxes when he took the lump sum.
Which would you rather have, the lump sum or the income stream?
Paula Straub
760-917-0858
savegainstax@gmail.com
www.savegainstax.com
Showing posts with label Self Directed Installment Sale. Show all posts
Showing posts with label Self Directed Installment Sale. Show all posts
Tuesday, September 15, 2009
Tuesday, July 28, 2009
When Does a Self Directed Installment Sale Make Sense?
How do you know which capital gains tax saving strategy to choose when you don’t know much about any of them?
The next couple of emails will talk about when a particular strategy might make sense. You may or may not recognize your own situation because there is never one size fits all but I’m hoping getting down to basics might shine a little light on the subject.
Here are some reasons to consider a Self Directed Installment Sale
* Your desire is to maximize the amount of return over time to you and your family and a 1031 exchange is not a good or possible option for you
* You desire the maximum amount of flexibility in setting up how you receive an income stream
* You are looking for safety of return, a decent interest rate and a dependable income for a fixed amount of time
* You want the possibility of being able to cancel the income and take a remaining lump sum without major consequences in the future in case of unforeseen circumstances or emergency need
* You have no major wish to give a portion of your proceeds to charity- your family and heirs are most important
* You may have reason to defer taking any income for up to 10 years and wish to maximize future income for when you do retire and defer paying the bulk of the capital gain until a later date
* You don’t need a tax deduction to offset higher ordinary income tax rates in the year of sale
If some of the above reflect your needs, and you have a current sale pending, fill out the Confidential Questionnaire at www.savegainstax.com and I will contact you to discuss further.
Paula Straub
760-917-0858
savegainstax@gmail.com
The next couple of emails will talk about when a particular strategy might make sense. You may or may not recognize your own situation because there is never one size fits all but I’m hoping getting down to basics might shine a little light on the subject.
Here are some reasons to consider a Self Directed Installment Sale
* Your desire is to maximize the amount of return over time to you and your family and a 1031 exchange is not a good or possible option for you
* You desire the maximum amount of flexibility in setting up how you receive an income stream
* You are looking for safety of return, a decent interest rate and a dependable income for a fixed amount of time
* You want the possibility of being able to cancel the income and take a remaining lump sum without major consequences in the future in case of unforeseen circumstances or emergency need
* You have no major wish to give a portion of your proceeds to charity- your family and heirs are most important
* You may have reason to defer taking any income for up to 10 years and wish to maximize future income for when you do retire and defer paying the bulk of the capital gain until a later date
* You don’t need a tax deduction to offset higher ordinary income tax rates in the year of sale
If some of the above reflect your needs, and you have a current sale pending, fill out the Confidential Questionnaire at www.savegainstax.com and I will contact you to discuss further.
Paula Straub
760-917-0858
savegainstax@gmail.com
Tuesday, March 03, 2009
How Bill Saved $240,981 Using a Self Directed Installment Sale
Bill owned an investment property that had appreciated a lot in value. He had depreciated it completely over the years.
Bill’s adjusted cost basis was $0. His straight line depreciation was 200K. The selling price after closing costs was 1.2 million. His gain is 1.2 million and of that 200K is taxed at depreciation recapture rates, and 1 million is taxed as capital gain.
Bill is 62 years old and lives in Utah where capital gains are taxed at 5%.
Bill did not want to do a 1031 exchange and wanted the maximum amount of proceeds to be kept in his family. A Self Directed Installment Sale was his vehicle of choice.
If Bill had sold and paid all taxes upfront, he would have owed about 264K in taxes.
By structuring the sale correctly, Bill chose a 25 year payout so it would most likely last him the rest of his life. He is single and has one son who is financially sound.
By spreading out the repayment of capital gains and depreciation recapture over 25 years, Bill was able to recognize a savings of approximately 241K .
Assuming Bill paid his taxes, invested the proceeds at 6% interest and took withdrawals to live on over a 25 year period, his annual income would be approximately $73,056.00 per year.
By deferring and spreading out the tax repayment over 25 years and assuming that the proceeds are also invested at 6% during the payout phase, his annual income is $93,661.00 per year.
In these crazy times, can you use the extra income, or do you prefer to give it to the IRS?
Paula Straub
www.savegainstax.com
savegainstax@gmail.com
760-917-0858
Fill out a Confidential Qualification Questionnaire and see if you qualify to save capital gains tax. Go to
http://www.savegainstax.com/qq.html
Listen to my weekly radio show “Simply Wealth” at www.webtalkradio.net
Bill’s adjusted cost basis was $0. His straight line depreciation was 200K. The selling price after closing costs was 1.2 million. His gain is 1.2 million and of that 200K is taxed at depreciation recapture rates, and 1 million is taxed as capital gain.
Bill is 62 years old and lives in Utah where capital gains are taxed at 5%.
Bill did not want to do a 1031 exchange and wanted the maximum amount of proceeds to be kept in his family. A Self Directed Installment Sale was his vehicle of choice.
If Bill had sold and paid all taxes upfront, he would have owed about 264K in taxes.
By structuring the sale correctly, Bill chose a 25 year payout so it would most likely last him the rest of his life. He is single and has one son who is financially sound.
By spreading out the repayment of capital gains and depreciation recapture over 25 years, Bill was able to recognize a savings of approximately 241K .
Assuming Bill paid his taxes, invested the proceeds at 6% interest and took withdrawals to live on over a 25 year period, his annual income would be approximately $73,056.00 per year.
By deferring and spreading out the tax repayment over 25 years and assuming that the proceeds are also invested at 6% during the payout phase, his annual income is $93,661.00 per year.
In these crazy times, can you use the extra income, or do you prefer to give it to the IRS?
Paula Straub
www.savegainstax.com
savegainstax@gmail.com
760-917-0858
Fill out a Confidential Qualification Questionnaire and see if you qualify to save capital gains tax. Go to
http://www.savegainstax.com/qq.html
Listen to my weekly radio show “Simply Wealth” at www.webtalkradio.net
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