Avoid Capital Tax Gain Hit

Avoid Capital Tax Gain Hit

We have recently met some families in Los Gatos who are planning on selling their home they purchased in 1960s for $50,000 !  Yes, that sounds obscene compared to today’s prices, but these folks are in for a surprise if they sell their homes outside a Deferred Sales Trust since their earning will be subject to an effective rate 25% for Capital Gains tax since the earning exceed the allowable $500,000 exemption for married couples.  And with an average Sale price in Los Gatos at $1.2 million dollars in June 2013, that’s a $300,00 of taxes that the sellers would have to pay in ONE lump sum to IRS.  That’s why we wanted to document Top 7 Benefits of using Deferred Sales Trust strategy to help these families avoid paying IRS that huge check using a Deferred Sale Trust.    

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%!!  Compounding the problem is that if you took depreciation as part of your typical deductions during your holding period, that amount would increase your Tax Liability as well.  The relief comes with 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.  The balance of the funds can also be invested into monthly payments.

Now let’s examine the 7 Benefits of using Deferred Sales Trust:  

1) Tax Deferral: The seller is not obligated the make a huge lump sum payment to IRS.  When appreciated property is sold, tax on gain is deferred until receipt of payments.  The seller is 

2) Estate Tax Benefits: Using a Deferred Sale Trust accomplishes an Estate freeze for estate tax 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) Estate Liquidity:  Deferred Sale Trust strategy converts non-liquid assets into monthly payments.

5) 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.

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

7) Eliminates Risks Associated with Ownership: By utilizing a  Deferred Sale Trust strategy any liability associated with the Asset is rendered neutral.  

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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