Successful real estate investing in the state of California takes more than money and luck. It requires knowledge about the current real estate market. It is also important to be well aware of the tax ramifications that occur when selling real estate for profit. We are mainly talking about the capital gains tax. When you sell real estate that you have held as an investment, the rate at which you are taxed on the profit may vary. However, it is always based on a significant percentage of the profit. That means the capital gains tax and other associated taxes are reducing your overall wealth.
The point of investing is to build wealth. You need to do everything within your legal means to protect wealth which may have taken you years to accumulate. Which brings us to two (2) methods that is utilized to defer paying taxes when selling investment properties for profit. The first is called the 1031 tax deferred exchange. 1031 transactions can be useful, however they often fail. Under this method, the Internal Revenue Service, or IRS for short, requires real estate investors to re-invest their proceeds into a replacement property that is of similar value. That means you do not realize any profit in the form of liquid assets. In essence, you are exchanging one investment property for another.
The second tax deferment method that many savvy real estate investors utilize is called an Installment Sales strategy, which has been around since the inception of the Internal Revenue Code. It provides real estate investors with the ability to defer taxation because the proceeds from the sale are paid out in installments instead of all at once. The installments are paid out monthly for a pre-determined amount of years that are chosen by the seller. Only the installments are taxable as income for the year in which they are distributed. Also, by spreading out payments vs taking a lump sum distribution of net sale proceeds will often in its self reduce one’ s capital gains negative tax impact.
The bottom line is that you can cash out a real estate investment in stages and delay the taxes while doing so. Earlier in this article we mentioned that a plethora of 1031 exchanges fail. This is due to the fact that the IRS has instituted a strict set of rules. For example, the replacement investment property must be officially identified within a maximum time frame of 45 days from the time you close on the sale of your investment property. In addition, you must close on the purchase of the replacement property within 180 days from the time you closed on your original sale.
Under an Installment Sale plan, you simply can sell your 1031 account balance to a skillful Installment Sale buyer such as Tax Deferred Sales, LLC. The Installment Sale buyer has numerous repayment options to provide optimized tax deferred payment income streams to the Seller. While the process is easy to execute, it should always be structured properly by a skilled and experienced Installment Sale Buyer such as Tax Deferred Sales, LLC (“TDS”).
TDS can also implement an Installment Sale where a Seller has an existing Sale Contract with a Buyer, as long as the Buyer has an outstanding financing condition outstanding.
If you are interested in an Installment Sale in California, please contact Tax Deferred Sales today. TDS has specifically developed a proprietary tax expertise Installment Sale structure to save failing 1031 exchange transactions and to acquire other Seller Sale transactions. 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 Paul A. Conte, Esq. a LLM tax attorney with over 20 years tax deferral experience and expertise with a singular focus on assuring sellers delay of taxation.