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DEFERRED SALES TRUST
Part 1 of Our Ongoing Series: Solutions for Mobile Home Park Owners Struggling With Capital Gains Tax • Do you want to be able to buy back into L et’s face it: Capital gains tax and depreciation recapture are serious problems facing individuals who want to sell their highly
and back out of real estate, loan the funds for business purposes such as a real estate loan, buy into a business, or develop RE on your own timing — all capital gains tax deferred, without having to follow any timing guidelines?
appreciated assets. According to the American Bankers Association, $17 trillion in assets will pass from one generation to another over the next 20 years. This is the largest generation in the history of the planet, known as the “baby boomers.” 77 million are starting to retire in the U.S. alone, with 10,000 baby boomers turning 65 every day. The top 3 percent of wealth in America owns commercial real estate. Current state and federal capital gains tax rates plus depreciation recapture collectively add up to 37–50 percent of their gain, so it’s no wonder many owners are reluctant to sell. But what choice do we have, other than a 1031 exchange or Delaware Statutory Trust? Is there another way to deal with the capital gains tax deficits that so many investors experience when they sell their business or real estate assets that does not require them to purchase a new property and start all over again with new management, new tenants, and new liability? • Do you want to trade your property and/ or business, toilets, trash, management, and liability for time, travel, liquidity, diversification, and retirement? • Are you selling your property or business and want to defer your capital gains tax instead of paying it to Uncle Sam or have to do a 1031 exchange and start over with a new property, new management, and new liability? • Are high capital gains taxes around 37–50 percent of your gain and restrictive 1031 laws holding you back from selling your commercial real estate?
There is another way, and for some, it’s a better way. It’s called a deferred sales trust (not to be confused with a Delaware Statutory Trust). Most mobile home park owners struggle with capital gains tax and depreciation recapture when they sell their properties or businesses. We use a deferred sales trust to help them gain tax deferral, freedom, flexibility, liquidity, and diversification with their funds so they can create and preserve more wealth. What is a deferred sales trust? It is a manufactured installment note. The basis of this is the “seller carry back” IRC 453 tax law, which goes back to the 1920s. The process starts when a property owner sells their property to a trust owned by a third-party company. The trust sells the property or business. Next, the trust "pays" you. The payment isn't in cash but with a payment contract called an "installment contract." The contract promises to make payments to you over an agreed period of time. There are zero taxes to the trust on the sale since the trust "purchased" the property from you. The payment is made with an installment contract, which makes payments to you over an agreed period of time. The options for when and how payments can be made are flexible, as are where the funds are invested and who manages the funds. The tax code doesn't require payment of the capital gains until you start receiving installment payments. If you would like to learn more about the deferred sales trust and how it is different from a 1031 exchange or Delaware Statutory Trust, you can attend a free live webinar that will walk you through the strategy and the step-by-step process every Friday at 10 a.m. PST. Visit our website to register at CapitalGainsTaxSolutions.com or call us directly to learn more at 916-886-2986 Bonus: I was recently on Kevin Bupp's podcast, "Real Estate Investing for Cashflow," if you would like to learn more about the deferred sale trust here: Episode 190: The Little Known Secret to Legally Defer Your Capital Gains from Real Estate and Preserving Your Wealth via the Deferred Sales Trust – with Brett Swarts
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