Don’t sell your Los Altos home without a Deferred Sales Trust!

Selling your Los Altos home without considering the Capital Gains implications would be crazy specially given the 20% taxes from IRS and 9.3% his from State of California.   And as if that was not painful, enough the high-income earner tax hit will push your tax obligation on any gains above $500,000 to more than 30%!!  

Your Capital Gains Taxes are calculated by subtracting what your Cost Basis for your home Home/Building  from Net Sales proceeds. Relief from Capital Gains obligations comes tax exemption of $250,000 for husband and wife in the sale of their primary residence.  But if you have gains above $500,000 you would be subject to 25% taxes on the balance which would take huge bite if you were planning on those funds for retirement or future investments.  

But real relief could come in the form on Deferred Sales Trusts where you will only pay capital gains taxes on the proceeds you receive from the trust as cash payments.  And the rest of your net proceed from your sale can be invested in Annuities, Mutual Funds or other investment vehicles which are ideal for Baby Boomers who want to sell their homes for cash and retire.   

By setting up a Deferred Sales Trust, ownership of the property is transferred to a dedicated trust set up  to manage your sales transaction.   Since no funds exchanged during this transfer of assets, it is not considered a taxable transaction.   Deferred Sales Trust then sets up special payments as part of “installment Sales Contract”.   These payments could begin immediately after sale or deferred (hence the name) for some period of months or years.   Once your home is sold, there are ZERO Capital Gain taxes due on the Trust since the Trust purchase the property for the SAME price that it sold it to the 3rd party.   Owner is subject to ONLY subject to Capital Gains taxes on the amount they immediately receive from the final 3rd party sale.  

Another advantage of the Deferred Sales Trust is that future tax payments are made to IRS as part of an installment plan and since these payments are made with depreciated dollars, you end up paying much less in taxes that you would have if you sold without a Deferred Sales trust.  

That’s why we strongly advise you discuss your sale with our Estate Planning Team before selling large pieces of property.     

[maxbutton id=”2″]