You want or need to sell your real property and have decided a 1031 Exchange is not an option. Find out why a Private Annuity Trust may very well be your best strategy to keep your gains.
In the last article, I pointed out when, as a real estate investor, doing a 1031 Exchange on the sale of a Real Estate Property may not be your best option.
So, let's assume you do want or need to sell a real estate investment, don't want to do an exchange, and don't want to pay a huge lump sum capital gains tax payment of 15-40% on your gains. Now is the time to see how a Private Annuity Trust can save you money.
It's important to know that you don't avoid paying your capital gains tax obligation, you just get to defer all payment for a while if you're under 70 years old, or you at least get to spread out the obligation over many years. The total of years can be your lifetime or a fixed number of years determined by you when you set up the trust.
So, how does that help you? Well, if someone were to offer you a 0% interest loan on let's say $300,000.00 for the next 30 years, and you only had to make minimum payments, would you jump at the chance? Most people sure would. Think of how you could invest that 300K so that you could enjoy the benefit of the interest it accrued. This is effectively what a Private Annuity Trust does for you. It allows you to keep most of your gains working to your advantage, while paying back the money owed to the IRS over a long period of time.
This also holds for the depreciation recapture if you owned your property for a long period of time and depreciated it according to a schedule to realize annual tax advantages of owning investment real estate.
If you do not put a tax strategy in place and sell outright, not only do you owe capital gains tax, but you also owe depreciation recapture, which can be another 25-35% of your total depreciation taken over the ownership cycle of your investment.
And, you will avoid the possibility of the dreaded Alternative Minimum Tax trap. This is something else that may catch you by surprise when you least expect it triggered by your outright sale of property. This could mean having other legitimate tax deductions disqualified and a higher tax payment owed by you.
As you can see, it's definitely worth it to consult with an expert in Capital Gains Tax saving strategies before you make the decision to sell your real property.
The PAT can also work with the sale of a second home, vacation home, or even your primary residence. With these assets, a 1031 exchange is not an option.
Private Annuity Trust vs. 1031 Exchange- When a PAT makes Sense (Part I)
There comes a time when you need to exit a real estate investment and a 1031 just doesn't make sense. A Private Annuity Trust may be your best strategy to save a sizeable amount of capital gains tax.
Not all CPAs and Attorneys are Knowledgeable on Capital Gains Tax Issues
Does your CPA , Attorney, Financial Advisor or Realtor understand how to help you with your Capital Gains Tax Problem? Many have no idea, but are reluctant to tell you so.
How Are Monies Invested Within a PAT?
Should the funds in a Private Annuity Trust be invested in stocks, bonds, mutual funds, or investments that guarantee the principle. Is this a place to aim for a home run, or to insure that you will get the payments you are promised?
