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The Rules - They Keep on Changing
2007-03-01 03:38:00
Just when I think things are finally settling down and there won't be any more changes for a while, they change again. It truly is a process of constant evolution.Don't get me wrong, change is often good, but it goes to show you that you can't rely on the information given to you by someone who is not monitoring these updates on a daily basis.What was true 4 months ago was not true 3 months ago and not what was true 2 months ago is not true today. And there were about 20 revisions in between.Today's change involves the way recaptured depreciation is reported when doing an installment sale through a foundation. I have gone back and revised my last post to reflect this change.The recaptured depreciation on sale of real estate is now due at time of sale (or on the next tax filing). However, the good news is, that the upfront tax deduction has been increased, so a good portion is canceled out between this deduction and the amount forever forgiven by the charitable bargain sale.Payin...
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Are Taxes Inevitable? Maybe, but They Can Be Minimized (revised entry)
2007-02-23 19:22:00
Are taxes really inevitable? Maybe, but with proper planning they can be minimized! By Paula StraubWhen selling a highly appreciated asset, capital gains tax is always an issue. If it is property that has been depreciated over time, recaptured depreciation is also a concern. Triggering the AMT is a good bet as well. Most investors have no true concept of the amount of their gain that will go to taxes when they sell outright.Most actually think 15% is all they will owe, but in reality it is usually closer to 25-45%.Selling businesses or closing down corporations also trigger more tax than is thought. It matters whether you sell an asset within a business and then have to get the money out of the business and into your personal account (often meaning additional income tax) or if you sell the business as a whole as shares or percentage ownership.No one disagrees there is a tax problem, but finding out what options are available and best suit your needs is the greatest challenge.Here ar...
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"Interview with the Pros" is Revised for 2007
2007-02-09 22:19:02
With all of the new and exciting changes in Capital Gains Tax savings, the new revised version of my Inter view with the Pros series has been updated for 2007.You will hear directly from the founder of the charitable foundation offering the installment sale through the foundation for maximum tax savings. The information of how a charitable bargain sale is combined with an installment sale to provide a guaranteed income stream, charitable tax deduction and partial forgiveness of capital gain tax and recaptured depreciation is explained in simple language.Your CPA and attorney will love this important information. You will know what only about 1% of any potential seller or their counsel even aware of.My segment is new as well, detailing how the recent changes have opened up ways to help people that didn't exist last October.Here's the new link Interview with the Pros - 2007 RevisionIf you have more than 100K inequity in any investment you are selling, you will receive your investment...
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Californian's Get a Break in 2007
2007-02-01 10:12:03
Among new laws taking effect for investment property sales after January 1, 2007 , this one gives a break to most real estate investment property sellers.Here's an excerp from a San Francisco newpaper article:-- Lower withholding on property sales: If you sell any type of real estate other than your primary residence for more than $100,000 in Cali fornia , the escrow company is usually required to withhold part of the proceeds for state taxes.The old withholding rate was 3.33 percent of the sales price."Many times that resulted in over-withholding," says Denise Azimi, a spokeswoman for the California Franchise Tax Board. Sellers had to wait until they filed their return to recoup the excess tax.Now you have a choice: You can request withholding at the old rate or an amount equal to your estimated capital gain, taxed at your marginal state-tax rate, which for most individuals is 9.3 percent.If you sold a $1 million property with a $100,000 capital gain, under the old law your withhold...
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Time to Sell Florida Investment Property?
2007-01-31 10:11:02
Hi All,I've been getting a ton of calls from Florida property owners lately. There is a very good reason for this.Three things have happened in the Florida real estate market in recent years.First, property values have increased dramatically. That's good news, of course.Second, property is being reassessed for the higher values and property taxes are increasing rapidly. Not so good...Third, due to the recent hurricanes, homeowner's insurance is either being canceled or has become so cost prohibitive that many people can no longer afford it. Again, not good for owners.My parents live in Florida on a fixed income. They own their home outright, so have the option of not having home owner's insurance. Their carrier is pulling out of the Florida market completely. The 'replacement' carrier is almost tripling the premiums and increasing the deductible. They have decided to take their chances and go without.For those with mortgages, this is not an option. Most lenders require you car...
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How do you Treat the New Kid on the Block?
2006-12-21 09:43:01
First, if anyone has sent a qualification questionnaire in the last 3 weeks and did not get a response- it was eaten up by the email goblins who sent it to a black hole somewhere. After receiving a call from someone who thought I just wasn't getting back to them as promised, I discovered the email program had decided to just completely break down. It is fixed as of today, and all is back on track. I really hate it when that happens, and it does seem to happen at least twice a year without warning for some reason no one can figure out.The last few months have certainly brought major changes in the Capital Gains Tax Savings arena. It has become an ongoing evolution and is definitely to the benefit of the seller, as the problem has not diminished as far as the taxes owed if an appreciated asset is sold outright. Not everyone welcomes change, however, and as is all too common - change breeds controversy.I have come up with an analogy that I believe will describe how different people te...
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My Pain is Your Gain
2006-12-13 09:36:03
It's been a bit longer than usual since I've posted. This is mainly due to more great changes in the capital gains tax saving arena.Ever since the Private Annuity Trust was discontinued, a lot of professionals have been working overtime to come up with better and better options.The most recent (effective 12/15/06)is the best yet. Although each time a client can benefit more I'm jumping up and down, I've done a bit of personal grumbling as I have to constantly update my sites, posts and even postpone the launch of my new product- which was due out today.The new strategy is an installment sale through a foundation, and the thing that has recently changed is the foundation itself. The reason is that the new foundation does all the things the other one did but returns more to the client because it contains costs at a more effective rate.I'll be holding a special telecall next week to explain in greater detail,and I will be posting more as time allows. Just know that it gives you th...
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The Best News to Date for Capital Gains Tax Savings!
2006-12-02 15:27:08
This is so awesome!You may have heard the saying "when one door closes another one opens". I believe this has truly been the case regarding recent developments in the capital gains tax savings arena.Initially, when the Private Annuity Trust was discontinued by theIRS I hoped they would come to their senses and bring it backshortly.Now, with the option that has just become available as I writethis, even if they brought it back tomorrow, I don't think it evencompares in benefits.If you could sell your asset, get an immediate charitablededuction, have a decent portion of your capital gains taxobligation forgiven forever, possibly have your closing costs paidfor, receive a guaranteed series of payments with principle andinterest over a number of chosen years, have the asset removed fromyour estate and the remainder still pass to your heirs on death,and your favorite charity receive money to boot- would that appealto you?If not, quit reading now and pay your taxes. It's that simple.Com...
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Thanksgiving Wishes and Thanks
2006-12-02 15:27:08
I believe it's a good idea to just take a day and be truly grateful for whatever blessings that we do have in life.Thank you for giving me the opportunity to educate you and to keep you up to date and informed on the latest capital gains tax strategies. I so appreciate whenever you take the time to send an email or chat in person.There have been a great deal of changes on the tax front this year, and most have been for the good once the dust has cleared. 2007 promises to be an even better year for helping clients hang onto more of their profits.I am personally thankful for surviving a "No Change" IRS tax audit this week. All I can say is that it pays to follow all the IRS rules and to keep good records and documentation!Even though I did things correctly, I spent many hours preparing all of the documentation requested and dreading the unknown. I don't wish this experience on anyone, but you honestly don't know when your number will come up during the "random" audit selection proc...
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Part 2 of 3 - Origin of Insured Structured Sale
2006-12-02 15:27:08
Part 1 covered the basics of an Installment Sale . Part 2 will explain the concept of a Structure d Sale . Part 3 will then explain how both the Installment Sale and Structured Sale have led the way for the Insured Structured Sale.Let's say we are selling a piece of real estate for this example. A buyer is located and a sales price negotiated. Instead of the buyer making payments to the seller over time, the buyer can assign his obligation to make those payments to an Assignment Company.The buyer effectively gives the sale proceeds in a lump sum to the Assignment Company, who in turn agrees to make payments back to the seller over a certain period of time and at a specific interest rate. Thus, the risk is transferred to the Assignment Company and away from the seller.The seller only has to pay capital gains tax on the amounts he receives as principle as he receives it in the payments from the Assignment Company. He has no access to the bulk of the money, so no constructive receipt has...
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Part 1 of 3 - Origin of Insured Structured Sale
2006-12-02 15:27:08
I thought it best to break down how the Insured Structure d Sale has come into being into a 3 part article. I think it will give you a bit of insight on just how powerful a concept it actually is, and that it is a great alternative to the Private Annuity Trust, which is currently unavailable for use, as of 10/18/2006 until further notice.In this article, I'll give the basics of an Installment sale which follows IRS guidelines, section 453. It is not my intent to go into IRS code specifics here or technical jargon, only to relay the concepts to make them understandable.Part 2 will feature the basics of the Structured Sale, and Part 3 will show how both Parts 1 and 2 have emerged into the Insured Structured Sale.In its basic structure, and I'll use real estate as an example, the Installment Sale is basically an agreement between the buyer and the seller for the buyer to make payments back to the seller over a stated period of time, with a specific interest rate until the agreed upon ...
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An Unexpected Surprise and Potential Capital Gains Tax Night
2006-12-02 15:27:08
You might think of bonds as a pretty safe long term investment. If you're not familiar with the different type of bonds out there, you may think of ordinary government saving bonds or Treasury bonds.I spoke to a gentleman this week who had exchanged a real property for a type of tax free industrial bond several years ago. It was done as a structured sale with a non-profit organization, and the return rate was actually very good and supposed to last for 13 years. He was paying a bit of principle back each year, but most of his income was from the bonds and non-taxable.Then came the nasty surprise. After only a few years, the bonds were being "called" by the non-profit organization. They had gotten a new bond issue for more than 3% less interest, and it was in the original agreement that they could replace or pay out at a date sooner than the original bond termination date.Well, now this gentleman was no longer in such a great position. If he sold outright, he would pay 30.5% in taxe...
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Capital Gains Tax Strategies Require Action
2006-12-02 15:27:08
I spoke to a couple of people this past week that wish not to pay their capital gains tax, but they don't want to put any effort into the strategy on their end.For example, a woman in her 70's is selling investment property. It is in escrow. She doesn't want to own another investment property but also doesn't want to consider doing a 1031 TIC exchange, a Private Annuity Trust or a Charitable Remainder Trust. The reason being she's just tired of the whole thing and doesn't want to do anything she hasn't heard of before.Ok, that's great, but if she'd heard of any of these things and was familiar with them, she probably would already have put one of those strategies in place.I wish I had a magic pill that would allow you to save all of your capital gains tax without any effort on your part. If your mind is closed to learning new concepts, I guess paying your taxes is the best option for you.This particular lady will owe 100K if she just sells. She is retired and will never be ...
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Are Private Annuity Trusts Being Challenged by the IRS?
2006-12-02 15:27:08
Does the IRS challenge Private Annuity Trust s? Of course they do.Does that mean you shouldn't have one if it is in your best interest? Of course not.The key here, like with anything, is to have it set up, funded and administered properly according to IRS tax rules. If it's done right, it won't be challenged.What are some of the red flags that trigger IRS challenges? Here's a few. These are all things done by parties trying to "bend" the IRS rules to suit their individual or joint purposes.1. If setting up the trust can be viewed as "Constructive Receipt". This basically means, the trust was thrown together at the last minute for no other purpose than to avoid paying capital gains tax. If done while in escrow, there needs to be evidence of contingencies of sale not yet met when the trust is created.2. The funds are invested in volatile investments which show losses in annual tax audits. The funds are supposed to be invested in prudent vehicles so that the trust has enough funds t...
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Part 3 of 3 - Origin of the Insured Structured Sale
2006-12-01 10:05:05
Part 1 covered the basics of an Installment Sale . Part 2 explained the concept of a Structured Sale . Part 3 will now go over how the combination of the first two concepts has become the Insured Structured Sale as it exists today. Using the example of a 500K sale of real property, here?s how the Insured Structured Sale might work. Assume this property is owned free and clear. A buyer is found and an agreeable sales price is determined (500k). Prior to close of escrow, an Assignment Company meets with the buyer, and the buyer assigns the obligation for making payments totaling the sales price to the seller. The buyer pays his 500K to the Assignment Company and his sale is complete. The Assignment Company now enters into a contract with the seller to make payments to the seller over a certain amount of years at an agreed upon interest rate. Capital Gains Tax and recaptured depreciation is deferred, and paid back in small chunks as payments are received. It is at this point the Insured...
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Insured Structured Sale as PAT Alternative
2006-10-25 09:18:03
I want to invite you to a special teleconference this Thursday, October 26th to learn about an exciting new alternative to the Private Annuity Trust. As I stated in my last post, the PAT was discontinued until further notice by the IRS on October 18, 2006. The Insured Structure d Sale is a very effective capital gains tax saving strategy. I will be discussing the features and comparing it to the Private Annuity Trust. It is cutting edge information that you must learn about if you or anyone you know has a capital gains tax issue. Please go to this link and register now. Sign me up for the call. I look forward to cluing you in to your new alternative. Paula Straub SaveGainsTax 760-917-0858
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New Site for Real Estate Investors
2006-10-21 14:51:04
I have just launched a new site for Real Estate Investor s wishing to learn about Capital Gains Tax Saving Strategies. It is located at the link below SaveRealEsateGains You can sign up for a free report and be kept up to date with case studies and current news on how to structure your sales so that you will not owe huge amounts of capital gains tax when your highly appreciated property is
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There is a reason for IRS time lines in 1031 Exchanges
2006-10-21 14:51:04
For a 1031 Exchange , be it a straight 1031 or a 1031 Tenant in Common Exchange, IRS dates need to be observed. Not only for strict tax purposes, but for practical reasons as well. Once paperwork is filed with a Qualified Intermediary prior to close of escrow that a 1031 exchange will be made, one has 45 days from the date of close to identify property(s) that one intends to purchase. If there
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Breaking News Regarding the Private Annuity Trust
2006-10-20 08:42:06
On October 18, 2006 the US Treasury Department issued a new proposed regulation regarding private annuity trusts. It is reg 141901-05. It has not been published yet, but will be very soon. For the time being, Private Annuity Trust s have been discontinued for use. We believe it is due to the number of PATs which were improperly structured, funded, and administered.In many cases, close relatives were made trustees and this brought into question the "hands off" intention of a non-grantor trust. The investments and borrowing practices in some of these trusts were also improperly and imprudently handled. In many cases the trusts were not properly set up, filed, and the tax returns required were either not filed as necessary or were filed in error. This was mostly due to non-professionals handling the details and not knowing what was required. For years, the trust company I represent has requested the IRS establish clear guidelines to prevent this type of abuse. It now seems this may be ...
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$1 Gain can Trigger 20K+ Tax Bill - Really
2006-09-27 11:18:01
Something very similar to the example in this article below by Robert Sommers happened to a woman I talked to last week. She bought her first investment property to fix up and sell at a profit. When she put it up for sale the market softened. She was carrying a $5500./mo loan and could only rent it for $2500./mo. By the time she lowered the price and paid realtor fees and was hit by the 3.3%
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Forgiveness of Debt is a Taxable Event- Whether you like it
2006-09-27 11:18:01
A fact that not many people realize, even tax professionals and attorneys, is that paying off a mortgage at time of sale is a taxable event. The IRS considers it "forgiveness of debt". Many people think that because they owe 200K on a 500K sale, their gain is only 300K. But, if they bought the home for 100K, their gain is 400K and this is the amount that capital gains tax is due on. They usually
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FAQ- Can I control investments within a PAT?
2006-08-31 08:24:58
The short answer is "no". This PAT is a non-grantor trust. The trustee (who cannot be you or your spouse) is responsible for investing the funds. The responsibility of the trust is to make the agreed upon payments back to you for the entire amount of time it was set up for. This concept seems scary for some, as they are used to complete control over how their assets are invested. This is understandable, but should become comfortable if the proper steps are taken to protect your investments. You do have some input before the trust is created. Although some advisors tout volatile investments such as stocks and mutual funds, caution should be taken with this approach. Just as these vehicles offer a large upside, they also have the possibility of major loss. Your trust could run out of funds and be unable to complete the payments due you. Once you begin receiving payments from the trust they are fixed. The rate used to calculate your payments is the Federal MidTerm Rate. Even if the tr...
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Financial Suicide
2006-08-17 19:48:02
Something very sad occurred today. I wish I could say I had never seen something similar happen before, but I have. Seemingly smart people make financially devastating and irreversible choices. The cause, I believe, is partly fear of something new to them, and partly the unwillingness to trust or listen to those professionals they have chosen to guide them. I realize that once one is burned in a
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If it sounds too good to be true, Change tax professionals
2006-08-17 19:48:02
Let me pose a scenario and see if it sounds a bit too good to be true. Sal makes 15K per year at his job. He owns a rental property he purchased for 100K five years ago and is selling today for 600K. Let?s just say his capital gain including all improvements, depreciation, and after all costs of sale is 450K. (I?m keeping it simple for this example) Sal goes to his local tax person, and this guy
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