Avoid Capital Gains Tax when selling your home. (image credit to netridedaily.com)

Avoid Capital Gains Tax when selling your home. (image credit to netridedaily.com)

We are meeting more and more Los Gatos homeowners who are living in fear of their Capital Gains tax liability when they considering selling their homes or businesses.The exemptions for Capital Gains tax start with $500,000 for husband and wife in the sale of their primary residence.  But if you have gains in excess of $500,000 you would be subject to 20% taxes on the balance which would take huge bite if you were planning on those funds for retirement or future investments.

And if you held your home for 1 year or longer is 20% for Federal Taxes and 9.3% for California making your total tax liability as high as 29%!! And   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.

Let’s look at example of where the NET proceed of your home sale is $1,000,000!  The table below shows an estimated amount of $323,400 that would be due to IRS in December 2013.  Your exact tax liability will be determined by our Estate Attorney team during your FREE one hour consultation.

Long Term Capital Gains Tax

 Percentage Dollar Amount


  20 %   $200,000


  9.3 %   $93,000
Obama High Income Tax (income above $200,000)   3.8 % $30,400
Total Taxes: $323,400

The sad part is that if you are don’t utilize a Deferred Sale Trust, you will be cutting this huge check for $323,400 to IRS at the end of the year!  However, there is relief if you utilize a Deferred Sale Trust where the “seller’, the ownership of the property is transferred to a dedicated trust set up  to manage the sales transaction.   Since the are no funds exchanged during this transfer of assets, it is not considered a taxable transaction.   The  Trust then sets up special payments as part of “installment Sales Contract”.

These payments could begin immediately after the sale of the assets or deferred (hence the name) for some period of months or years. Once the Asset is sold, there are ZERO Capital Gain taxes due on the Trust since the Trust purchase the San Jose property for the SAME price that it sold it to the 3rd party. The owner therefore is subject to ONLY subject to Capital Gains taxes on the amount they immediately receive from the final sale to the 3rd party.

The future payments are made to IRS as part of an easy installment plan.  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.

Feel free to contact us for a FREE one hour consulting with an Estate Planning attorney who can explain your option. We will also give you a Free Appraisal Report on your home’s value in Today’s market which will be used by the Estate Attorney to determine your Capital Gains Taxes when you sell.

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