Better than a 1031 Exchange
Own a business, corporation, investment real estate, or any other type of highly appreciated assets…and reluctant to sell because of your significant capital gains tax exposure? Think a 1031 Exchange is your only option?
Investors that purchase a 1031 replacement property may not realize that they are literally yielding their negotiating position. Once that seller learns the investor MUST BUY or PAY TAXES…there is no reason for them to lift a finger.
So what are better options…
Opportunity Zones & Fund: As part of the 2017 Tax Cuts and Jobs Act, investors are now able to defer taxes by investing their unrealized capital gains upon the sale of an asset into a Qualified Opportunity Fund. The “Fund” in turn invests into a designated Opportunity Zone as defined by states for economic development. A failed 1031 Exchange can rollover into an Opportunity Fund within 180 days of the sale. If held for a period of 10 years, the investor pays Zero capital gains taxes upon disposing of the Opportunity Zone property. A failed 1031 Exchange can rollover into an Opportunity Fund within 180 days of the sale.
Trust: Some of the more commonly known alternatives to manage tax obligations are Trust. The Charitable Remainder Trust (CRT), The Delaware Statutory Trust (DST), and the Deferred Sales Trust (DST). While these are good tools for some, most investors frown upon this structure once they realize that for the most part, they are locked in an irrevocable trust. When life happens and if funds are needed, it can be rather difficult to dissolve the trust and disburse without triggering a tax hit.
Structured Sales: A more flexible alternative where the investor sells their asset and paid installments over time vs receiving the total proceeds at the close of escrow. The sale is drafted under IRS Section 453 like an installment sale. By structuring and paying out in this manner, the investor only pays taxes on the periodic principal payments received.
The Monetized Installment Sale: By far the most flexible and beneficial option to manage your capital gains tax obligation when disposing of a capital asset. Although this approach has been around since the inception of the IRS tax codes, very few are aware of this powerful strategy.
Simply put, this is a perfect solution for the investor who desires to sell their asset, defer the capital gains taxes for 30 years, and receive liquidity at the close of escrow equal to 93.5% of the proceeds in a lump sum…not over a period of installment payments.
The IRS does provide several alternatives to a 1031 Exchange to satisfy capital gains tax obligations, but they’re not advertised. After all, the IRS is in the business of collecting taxes.
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