Real estate can be a rewarding and highly profitable investment vehicle for investors in the state of California. It is important to maximize your real estate investments in order to truly build wealth. That means you need to find legal ways to minimize the amount of capital gains tax that you are required to pay when realizing a profit on the investment. A great deal of people depend on the 1031 tax deferred exchange in order to accomplish this, but that tax deferment method is a road full of potholes, this is especially true given the unnatural recent shut down of the economy.
In fact, the rules and regulations as set forth by the Internal Revenue Service (IRS) are so time deadline strict that a plethora of 1031 transactions end up in total failure. That means you may be forced to accept the entire proceeds. Although it is good to have the cash on hand, it also triggers the capital gains tax, recapture income tax and potentially NIIT tax. The bottom line is that you will end up paying a high percentage of those proceeds to the feds. The good news is that you can still achieve guaranteed capital gains tax deferral by saving a failing 1031 transaction with an installment sale by a highly specialized tax expertise Installment Sale purchaser like Tax Deferred Sales, LLC (“TDS”).
A TDS Installment Sale purchase is based on 20 years of tax deferral expertise from an LLM taxation attorney, who has both the knowledge and the means to complete the transaction in the proper manner. The transactions must be structured based on careful planning with an eye on complying with section 453 Installment Sale method.
The seller of the property receives the profit/proceeds from the sale in yearly payments over a number of years determined by the seller. The benefit is based around the fact that both the state and federal capital gains taxes, recapture of depreciation taxes, and the net investment income taxes (“NIIT”)are delayed. This is possible because the seller is only taxed on the yearly payout for his or her income tax during that particular tax year.
For example, Seller sells his building for $4,000,000 with a $3,000,000 capital gain profit, which is subject to taxation if not legally deferred by Seller. If Seller successfully completes a Section 453 Installment Sale with an installment sale purchaser Tax Deferred Sales, LLC there will be large tax deferral results from Seller selling via an installment sale. Under the Installment Sale method Seller Instead of receiving the $4,000,000 in one lump sum, and paying the associated capital gains tax on the $3 million dollar profit, Seller sells via an installment sale plan that will provide him with ten (10) annual payments of $400,000. That means Seller is only taxed on the $400,000 per year as opposed to the entire $3,000,000 profit in one tax liability payment. Thus, Seller will delay his taxation on the $3 million in profit and will only pay taxes as he receives his payments, which may also reduce his overall tax impact, and Seller advantageously also get to receive back his original cost basis plus costs of improvements income tax free.
Since the seller has the ability to custom tailor the number of years, both the payout amounts and related tax payments are controlled by the seller as opposed to the Internal Revenue Service. Deferring capital gains taxation on the sale of your appreciated assets is an incredibly important piece of the real estate investment pie because it will greatly increase your net worth!
In conclusion, all is certainly not lost when you find yourself in the middle of a failing 1031 exchange. Please contact Tax Deferred Sales today for more information or to get started with an installment sale plan. TDS has specifically developed a proprietary tax expertise Installment Sale transaction structure that is far more effective than a complicated 1031 transaction, applies to personal residences and can save a failing 1031 exchange. Our team of experts specializes in providing customized strategies that delay tax impact. TDS takes great pride in assisting sellers of appreciated assets in deferring the capital gains tax that greatly enhances the ability to grow your net worth.
Our company was founded by a LLM tax attorney with over 20 years tax deferral experience and expertise with a singular focus on assuring sellers delay of taxation.