Mitt Romney - The 1 Percent

Mitt Romney – The 1 Percent (Photo credit: Cory M. Grenier)

Majority of Homes sold last month in cities like Palo Alto, Los Altos and Los Altos Hill were sold for over $1.25 Million dollars.  So, it’s quire possible that the sellers of these homes would have receive $500,000 or more at the close of escrow.  What can they do about Capital Gains Tax in this case!?   Is thee a way to deffer  the 15% Capital Gains Tax!?  What about the 9.5% Tax from State of California?!   But as we learned in the 2012 Presidential campaign, Mitt Romney only pays 13% on Taxes!    Perhaps he also uses Deferred Trust Sales to avoid Capital Gains Taxes!       

Capital Gains Taxes are computed by subtracting what your Cost Basis for your Real Estate Assets from the Net proceeds of your sale.  The rate for Long Term Capital Gains if you held your home for 1 year or longer is 15% for Federal Taxes and 9.3% for California making your total tax liability as high as 25%!!   The relief comes with tax exemption of $250,000 for husband and wife in the sale of their primary residence.  But as stated above most of these sellers are receiving in proceeds well in excess of $500,000.

An option for these sellers is 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.   

The future payments are made to IRS as part of an easy installment plan and since these payments are made with depreciated dollars, the owners end up paying much less in taxes that they would have if they sold without the use of a trust.  That’s why it is wise to investigate using a Deferred Sales Trust when you are considering selling large pieces of property.   Some of the benefits of using a Deferred Sales Trust are:

1) Capital Gains Tax Deferred : With the sale of the assets taking place inside the Deferred Sales Trust, the seller is not required to make a huge lump sum payment to IRS.  When appreciated property is sold, tax on gain is deferred until receipt of payments.  

2) Estate Tax Benefits: Using a Deferred Sale Trust accomplishes an Estate freezes for estate tax planning purposes.  

3) Maintains Family Wealth: Helps to maintain wealth within the family since the assets and the proceeds of the sales are managed through the trust.

4) Retirement Income:  Deferred Sale Trust Strategy provides a reliable stream of income for retirement which is critical for baby boomers who are now living much longer than the previous generation.

5) Probate Avoidance: Deferred Sale Trust strategy helps families avoid probate with proper estate planning.

If you are planning on selling your property and expect more than $500,000 dollars of gain, we can direct you to the attorney team that helps our clients in similar situation.

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