I believe it's a good idea to just take a day and be truly grateful for whatever blessings that we do have in life.
Thank you for giving me the opportunity to educate you and to keep you up to date and informed on the latest capital gains tax strategies. I so appreciate whenever you take the time to send an email or chat in person.
There have been a great deal of changes on the tax front this year, and most have been for the good once the dust has cleared. 2007 promises to be an even better year for helping clients hang onto more of their profits.
I am personally thankful for surviving a "No Change" IRS tax audit this week. All I can say is that it pays to follow all the IRS rules and to keep good records and documentation!
Even though I did things correctly, I spent many hours preparing all of the documentation requested and dreading the unknown. I don't wish this experience on anyone, but you honestly don't know when your number will come up during the "random" audit selection process.
If you don't know what you need to do when filing taxes, be sure and hire someone competent who does. You too will be thankful when everything is picked apart with a fine tooth comb and they go away satisfied.
Have a great Thanksgiving Holiday.
Warmly,
Paula Straub
Wednesday, November 22, 2006
Wednesday, November 15, 2006
Part 3 of 3 - Origin of the Insured Structured Sale
Part 1 covered the basics of an Installment Sale. Part 2 explained the concept of a Structured Sale. Part 3 will now go over how the combination of the first two concepts has become the Insured Structured Sale as it exists today.
Using the example of a 500K sale of real property, here’s how the Insured Structured Sale might work.
Assume this property is owned free and clear. A buyer is found and an agreeable sales price is determined (500k).
Prior to close of escrow, an Assignment Company meets with the buyer, and the buyer assigns the obligation for making payments totaling the sales price to the seller. The buyer pays his 500K to the Assignment Company and his sale is complete.
The Assignment Company now enters into a contract with the seller to make payments to the seller over a certain amount of years at an agreed upon interest rate.
Capital Gains Tax and recaptured depreciation is deferred, and paid back in small chunks as payments are received.
It is at this point the Insured Structured Sale is differentiated from the Structured Sale described in Part 2.
The Assignment Company now is obligated to make the agreed upon payments. They will in turn back their obligation with quality commercial annuities, but they are not obligated to purchase any particular product, nor does it have to be a Single Premium Immediate Annuity.
This is important, because with the range of annuities on the market today with principle guarantees and living benefits, as well as better liquidity, it gives the Assignment Company the ability to be much more flexible with the Sales Contract, making the terms much better for the seller.
Each case can be viewed individually and the best product for each unique situation can be utilized. Age, length of term, income needs, liquidity needs and growth factors can all be taken into consideration.
Since the annuity will not actually be annuitized, any remaining assets will pass to the heirs upon death.
The seller is not locked into a low interest, non-flexible product for the duration of the contract term. He is assured that all monies will be returned to him and/or his heirs with interest over time. There can even be provisions made within the contract to revisit the terms at benchmark dates and possibly revise the contract for purposes like inflation rates, etc. depending on the asset performance.
The fees involved are on a flat fee basis, no matter what the amount of the original sales price.
These are just the basics of this new strategy, and more examples will follow as cases unfold.
It is also important to note, that to the best of my knowledge only one Assignment Company offering this option exists at this time. Over time, you may see others follow.
The Insured Structured Sale really is a good alternative to the Private Annuity Trust, and in some cases, if the PAT is made available again in the future, I believe the Insured Structured Sale may still be the choice of many with Capital Gains Tax concerns.
I’ll keep you posted.
Paula Straub
760-917-0858
askpaula@savegainstax.com
ps. Find out if an Insured Structured Sale can benefit you. Fill out the Qualification Questionnaire and get a confidential and timely personal response.
Using the example of a 500K sale of real property, here’s how the Insured Structured Sale might work.
Assume this property is owned free and clear. A buyer is found and an agreeable sales price is determined (500k).
Prior to close of escrow, an Assignment Company meets with the buyer, and the buyer assigns the obligation for making payments totaling the sales price to the seller. The buyer pays his 500K to the Assignment Company and his sale is complete.
The Assignment Company now enters into a contract with the seller to make payments to the seller over a certain amount of years at an agreed upon interest rate.
Capital Gains Tax and recaptured depreciation is deferred, and paid back in small chunks as payments are received.
It is at this point the Insured Structured Sale is differentiated from the Structured Sale described in Part 2.
The Assignment Company now is obligated to make the agreed upon payments. They will in turn back their obligation with quality commercial annuities, but they are not obligated to purchase any particular product, nor does it have to be a Single Premium Immediate Annuity.
This is important, because with the range of annuities on the market today with principle guarantees and living benefits, as well as better liquidity, it gives the Assignment Company the ability to be much more flexible with the Sales Contract, making the terms much better for the seller.
Each case can be viewed individually and the best product for each unique situation can be utilized. Age, length of term, income needs, liquidity needs and growth factors can all be taken into consideration.
Since the annuity will not actually be annuitized, any remaining assets will pass to the heirs upon death.
The seller is not locked into a low interest, non-flexible product for the duration of the contract term. He is assured that all monies will be returned to him and/or his heirs with interest over time. There can even be provisions made within the contract to revisit the terms at benchmark dates and possibly revise the contract for purposes like inflation rates, etc. depending on the asset performance.
The fees involved are on a flat fee basis, no matter what the amount of the original sales price.
These are just the basics of this new strategy, and more examples will follow as cases unfold.
It is also important to note, that to the best of my knowledge only one Assignment Company offering this option exists at this time. Over time, you may see others follow.
The Insured Structured Sale really is a good alternative to the Private Annuity Trust, and in some cases, if the PAT is made available again in the future, I believe the Insured Structured Sale may still be the choice of many with Capital Gains Tax concerns.
I’ll keep you posted.
Paula Straub
760-917-0858
askpaula@savegainstax.com
ps. Find out if an Insured Structured Sale can benefit you. Fill out the Qualification Questionnaire and get a confidential and timely personal response.
Tuesday, November 07, 2006
Part 2 of 3 - Origin of Insured Structured Sale
Part 1 covered the basics of an Installment Sale. Part 2 will explain the concept of a Structured Sale. Part 3 will then explain how both the Installment Sale and Structured Sale have led the way for the Insured Structured Sale.
Let's say we are selling a piece of real estate for this example. A buyer is located and a sales price negotiated. Instead of the buyer making payments to the seller over time, the buyer can assign his obligation to make those payments to an Assignment Company.
The buyer effectively gives the sale proceeds in a lump sum to the Assignment Company, who in turn agrees to make payments back to the seller over a certain period of time and at a specific interest rate. Thus, the risk is transferred to the Assignment Company and away from the seller.
The seller only has to pay capital gains tax on the amounts he receives as principle as he receives it in the payments from the Assignment Company. He has no access to the bulk of the money, so no constructive receipt has happened.
Until very recently, the only Assignment Companies offering structured sales were owned by large insurance companies. The Assignment Company re-insured itself by investing the funds into a Single Premium Immediate Annuity with the associated insurance carrier. The annuity was then annuitized over the length of the contract and payments were made from the insurance carrier directly to the seller via another agreement.
The interest rates of an immediate annuity are fairly low, but the payments are insured by the carrier. If you chose the lifetime payout option (which would have the highest monthly payment), whenever you passed away whatever money had not been paid out to you was kept by the insurance carrier.
Again, this option is still available and can be used to spread out the payment of capital gains tax.
Part 3 will discuss a newer and more flexible version of the Structured Sale. It takes the good parts of the Installment Sale/Structured Sale and improves on some of the downsides as well.
Paula Straub
askpaula@savegainstax.com
http://www.savegainstax.com/
760-917-0858
p.s. If you need to determine how much you can save in capital gains tax, fill out the Qualification Questionnaire and get a quick and confidential personal response.
Let's say we are selling a piece of real estate for this example. A buyer is located and a sales price negotiated. Instead of the buyer making payments to the seller over time, the buyer can assign his obligation to make those payments to an Assignment Company.
The buyer effectively gives the sale proceeds in a lump sum to the Assignment Company, who in turn agrees to make payments back to the seller over a certain period of time and at a specific interest rate. Thus, the risk is transferred to the Assignment Company and away from the seller.
The seller only has to pay capital gains tax on the amounts he receives as principle as he receives it in the payments from the Assignment Company. He has no access to the bulk of the money, so no constructive receipt has happened.
Until very recently, the only Assignment Companies offering structured sales were owned by large insurance companies. The Assignment Company re-insured itself by investing the funds into a Single Premium Immediate Annuity with the associated insurance carrier. The annuity was then annuitized over the length of the contract and payments were made from the insurance carrier directly to the seller via another agreement.
The interest rates of an immediate annuity are fairly low, but the payments are insured by the carrier. If you chose the lifetime payout option (which would have the highest monthly payment), whenever you passed away whatever money had not been paid out to you was kept by the insurance carrier.
Again, this option is still available and can be used to spread out the payment of capital gains tax.
Part 3 will discuss a newer and more flexible version of the Structured Sale. It takes the good parts of the Installment Sale/Structured Sale and improves on some of the downsides as well.
Paula Straub
askpaula@savegainstax.com
http://www.savegainstax.com/
760-917-0858
p.s. If you need to determine how much you can save in capital gains tax, fill out the Qualification Questionnaire and get a quick and confidential personal response.
Wednesday, November 01, 2006
Part 1 of 3 - Origin of Insured Structured Sale
I thought it best to break down how the Insured Structured Sale has come into being into a 3 part article. I think it will give you a bit of insight on just how powerful a concept it actually is, and that it is a great alternative to the Private Annuity Trust, which is currently unavailable for use, as of 10/18/2006 until further notice.
In this article, I'll give the basics of an Installment sale which follows IRS guidelines, section 453. It is not my intent to go into IRS code specifics here or technical jargon, only to relay the concepts to make them understandable.
Part 2 will feature the basics of the Structured Sale, and Part 3 will show how both Parts 1 and 2 have emerged into the Insured Structured Sale.
In its basic structure, and I'll use real estate as an example, the Installment Sale is basically an agreement between the buyer and the seller for the buyer to make payments back to the seller over a stated period of time, with a specific interest rate until the agreed upon sales price has been fulfilled.
For example, the seller sells a property for 500K to a buyer. Instead of the buyer getting a mortgage or paying cash for the 500K, he/she agrees to make monthly payments over say 30 years to the seller at 6% interest rate. The seller is effectively the bank.
The seller only has to pay capital gains tax as he/she receives portions of the principle in payments, thus spreading out the tax obligation over a number of years. That is the upside.
The downside might be if the buyer quits making payments, or refinances the obligation. In this case the seller either has to take legal measures and possibly get the property back after time and expense, or receives a lump sum which causes all remaining capital gains tax to be due.
There are all sort of variations on this example, but hopefully you get the gist. This option is still available, but for a person setting up their retirement, it may be too risky.
Next, in Part 2, I will explain how the risk can be successfully transferred via a Structured Sale, but the reward my be less than ideal.
Paula Straub
askpaula@savegainstax.com
ps. I welcome your questions and comments. If you can't wait for Parts 2 and 3 give me a call and I will give you the details. 760-917-0858
In this article, I'll give the basics of an Installment sale which follows IRS guidelines, section 453. It is not my intent to go into IRS code specifics here or technical jargon, only to relay the concepts to make them understandable.
Part 2 will feature the basics of the Structured Sale, and Part 3 will show how both Parts 1 and 2 have emerged into the Insured Structured Sale.
In its basic structure, and I'll use real estate as an example, the Installment Sale is basically an agreement between the buyer and the seller for the buyer to make payments back to the seller over a stated period of time, with a specific interest rate until the agreed upon sales price has been fulfilled.
For example, the seller sells a property for 500K to a buyer. Instead of the buyer getting a mortgage or paying cash for the 500K, he/she agrees to make monthly payments over say 30 years to the seller at 6% interest rate. The seller is effectively the bank.
The seller only has to pay capital gains tax as he/she receives portions of the principle in payments, thus spreading out the tax obligation over a number of years. That is the upside.
The downside might be if the buyer quits making payments, or refinances the obligation. In this case the seller either has to take legal measures and possibly get the property back after time and expense, or receives a lump sum which causes all remaining capital gains tax to be due.
There are all sort of variations on this example, but hopefully you get the gist. This option is still available, but for a person setting up their retirement, it may be too risky.
Next, in Part 2, I will explain how the risk can be successfully transferred via a Structured Sale, but the reward my be less than ideal.
Paula Straub
askpaula@savegainstax.com
ps. I welcome your questions and comments. If you can't wait for Parts 2 and 3 give me a call and I will give you the details. 760-917-0858
Tuesday, October 24, 2006
Insured Structured Sale as PAT Alternative
I want to invite you to a special teleconference this Thursday, October 26th to learn about an exciting new alternative to the Private Annuity Trust.
As I stated in my last post, the PAT was discontinued until further notice by the IRS on October 18, 2006.
The Insured Structured Sale is a very effective capital gains tax saving strategy. I will be discussing the features and comparing it to the Private Annuity Trust.
It is cutting edge information that you must learn about if you or anyone you know has a capital gains tax issue.
Please go to this link and register now. Sign me up for the call.
I look forward to cluing you in to your new alternative.
Paula Straub
SaveGainsTax
760-917-0858
As I stated in my last post, the PAT was discontinued until further notice by the IRS on October 18, 2006.
The Insured Structured Sale is a very effective capital gains tax saving strategy. I will be discussing the features and comparing it to the Private Annuity Trust.
It is cutting edge information that you must learn about if you or anyone you know has a capital gains tax issue.
Please go to this link and register now. Sign me up for the call.
I look forward to cluing you in to your new alternative.
Paula Straub
SaveGainsTax
760-917-0858
Thursday, October 19, 2006
Breaking News Regarding the Private Annuity Trust
On October 18, 2006 the US Treasury Department issued a new proposed regulation regarding private annuity trusts.
It is reg 141901-05. It has not been published yet, but will be very soon.
For the time being, Private Annuity Trusts have been discontinued for use. We believe it is due to the number of PATs which were improperly structured, funded, and administered.
In many cases, close relatives were made trustees and this brought into question the "hands off" intention of a non-grantor trust.
The investments and borrowing practices in some of these trusts were also improperly and imprudently handled.
In many cases the trusts were not properly set up, filed, and the tax returns required were either not filed as necessary or were filed in error. This was mostly due to non-professionals handling the details and not knowing what was required.
For years, the trust company I represent has requested the IRS establish clear guidelines to prevent this type of abuse. It now seems this may be in the process of happening, but unfortunately, instead of publishing guidelines first, the IRS decided to discontinue the PAT until further notice. There will be a hearing on the proposed regulation on February 16, 2007.
As you can imagine, there are many attorneys working on alternate solutions to this sudden ruling.
The Capital Gains Tax Problem still exists for thousands of people and businesses. This need will only continue to increase and there are still solutions and strategies available to implement.
The current momentum is that we are working on variations of the Charitable Remainder Trust. It has always been one of the options and now it is more important than ever for capital gains tax savings.
The 1031 Exchange and 1031/TIC Exchange are also powerful concepts that continue to grow exponentially in monies invested.
It is my personal opinion that the PAT will be back. I can't say when, or what guidelines it will have once it is re-instated, but there are over 70 years of tax laws supporting its use and value.
It seems, once again, that some people and professionals pushed the envelope too far and took advantage of the intent of the Private Annuity Trust. Let's hope if and when it does come back, it will have the same great advantages, but will also prevent blatant abuse by less than "trust worthy" parties.
I will be updating you as information becomes available.
Warmly,
Paula Straub
ps. If you have questions you would like to see addressed, please email them to me at askpaula@savegainstax.com
It is reg 141901-05. It has not been published yet, but will be very soon.
For the time being, Private Annuity Trusts have been discontinued for use. We believe it is due to the number of PATs which were improperly structured, funded, and administered.
In many cases, close relatives were made trustees and this brought into question the "hands off" intention of a non-grantor trust.
The investments and borrowing practices in some of these trusts were also improperly and imprudently handled.
In many cases the trusts were not properly set up, filed, and the tax returns required were either not filed as necessary or were filed in error. This was mostly due to non-professionals handling the details and not knowing what was required.
For years, the trust company I represent has requested the IRS establish clear guidelines to prevent this type of abuse. It now seems this may be in the process of happening, but unfortunately, instead of publishing guidelines first, the IRS decided to discontinue the PAT until further notice. There will be a hearing on the proposed regulation on February 16, 2007.
As you can imagine, there are many attorneys working on alternate solutions to this sudden ruling.
The Capital Gains Tax Problem still exists for thousands of people and businesses. This need will only continue to increase and there are still solutions and strategies available to implement.
The current momentum is that we are working on variations of the Charitable Remainder Trust. It has always been one of the options and now it is more important than ever for capital gains tax savings.
The 1031 Exchange and 1031/TIC Exchange are also powerful concepts that continue to grow exponentially in monies invested.
It is my personal opinion that the PAT will be back. I can't say when, or what guidelines it will have once it is re-instated, but there are over 70 years of tax laws supporting its use and value.
It seems, once again, that some people and professionals pushed the envelope too far and took advantage of the intent of the Private Annuity Trust. Let's hope if and when it does come back, it will have the same great advantages, but will also prevent blatant abuse by less than "trust worthy" parties.
I will be updating you as information becomes available.
Warmly,
Paula Straub
ps. If you have questions you would like to see addressed, please email them to me at askpaula@savegainstax.com
Wednesday, October 18, 2006
There is a reason for IRS time lines in 1031 Exchanges
For a 1031 Exchange, be it a straight 1031 or a 1031 Tenant in Common Exchange, IRS dates need to be observed.
Not only for strict tax purposes, but for practical reasons as well.
Once paperwork is filed with a Qualified Intermediary prior to close of escrow that a 1031 exchange will be made, one has 45 days from the date of close to identify property(s) that one intends to purchase.
If there was some way to "fudge" this deadline (please don't ask me how because it is definitely nothing I advocate and would definitely advise strongly against) here is what could happen.
Besides having your exchange disqualified (if the IRS found out somehow you didn't follow their rules) you run the additional risk of having your 180 day close of exchange sale deadline missed.
If you do not complete your exchange within 180 calendar days from date of property close, you will pay capital gains tax - no questions asked.
This seems like plenty of time, right? It usually is. Fluke twists of fate do happen. Financing falls through, mistakes are made through no fault of yours, and the consequences are ugly.
Moral: Stick to the rules. They are there for a reason. Bad things might happen if you think you can "beat the system"
Paula Straub
(760)917-0858
Sign up for additional tips at Save Real Estate Gains
Not only for strict tax purposes, but for practical reasons as well.
Once paperwork is filed with a Qualified Intermediary prior to close of escrow that a 1031 exchange will be made, one has 45 days from the date of close to identify property(s) that one intends to purchase.
If there was some way to "fudge" this deadline (please don't ask me how because it is definitely nothing I advocate and would definitely advise strongly against) here is what could happen.
Besides having your exchange disqualified (if the IRS found out somehow you didn't follow their rules) you run the additional risk of having your 180 day close of exchange sale deadline missed.
If you do not complete your exchange within 180 calendar days from date of property close, you will pay capital gains tax - no questions asked.
This seems like plenty of time, right? It usually is. Fluke twists of fate do happen. Financing falls through, mistakes are made through no fault of yours, and the consequences are ugly.
Moral: Stick to the rules. They are there for a reason. Bad things might happen if you think you can "beat the system"
Paula Straub
(760)917-0858
Sign up for additional tips at Save Real Estate Gains
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