IRS - Defer Capital Gains Tax

IRS – Defer Capital Gains Tax

Taxpayer Relief Act of 1997 is set at $250,000 for single individuals and $500,000 for married couples in the sale of their primary residence.  The Act requires occupancy of the home as a Primary Residence for 2 of the past 5 years.  But if you were Donald Trump and had your lawyers working over time for you, you would discover that 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 I suspect Donald Trump would be using Deferred Sales Trust.   In a Deferred Sales Trust,  the property owner can transfer the assets to a dedicated trust that would be set up specifically for the purpose of liquadating this asset.  Trustee then becomes the Seller of the property.   But since this payment is not cash and is a private arrangement between the Trust and the owners, it’s not subject to any Capital Gains Tax.   In fact, the sale is done thought a contract called an “installment sales contract”.  It is strictly a private arrangement between the trust and the Seller/ Taxpayer.  Payments Terms for this transaction are established in advance and pursuant to the sale contract negotiated between the Seller and the Trustee.

The Seller is not taxed on the sale since he has not yet received any cash for the sale. Seller  has the option to defer or receive payments immediately which is a huge advantage when it comes to delaying paymets to IRS.   Payment for Capital Gain Tax to IRS are done with an “easy installment plan” only when the Seller receives payments.  Part of the payment received is tax free return of basis, part is return of gain which is taxed at capital gain rates, and part is interest.

Since the deferred payments are from depreciated dollars they will have less due to the inflation impact.   You cabn use a trained attorney who knows the ropes on Deferred Sales Trust and an approved Trustee to invest the balance of your gain in REIT’s, bonds, annuities, securities or other investments.   The goal of the trust’s investment objective is simply to produce the cash flow necessary for the scheduled installment sales note payments to the Seller.

We are working with a wonderful Estate Planning team who can explain Deferred Sales Trust in detail.    And if you choose to list your property with us, we will cover up to $5,000 of your Deferred Sales Trust cost.


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