This article is intended as educational, and should not be taken as legal or tax advice. For specific legal or tax advice, please consult a legal or tax professional.
Normally people who want to sell their property and defer capital gains, would use an IRC 1031 which is also called the Stocker Exchange.
An IRC 1031 will allow you to sell one like-kind property in exchange for another like-kind property.
By like-kind they mean income producing to income producing (i.e. rental property to rental property), and there are many rules about the type of property. (If you want to know more, I’ll be happy to refer you to one of my preferred Realtors).
But what if you don’t want to get into more rental real estate?
Lately I have been receiving a lot of calls about selling rental property (in addition to being a real estate investment coach, I am also a mortgage broker with nearly 30 years of experience).
Market values are high, and a lot of retirees want to cash-out and simplify their lives, but are rightly concerned about capital gains taxes. I have terrific news! There is a solution that my mortgage clients have used to help them avoid capital gains without and IRC 1031.
Let’s assume you bought a property 20 years ago and the value has gone up $500,000. Let’s ignore any improvements and closing costs to make this as simple a math problem as possible.
Normally if you sell the property outright you will pay capital gains on the difference between your basis (usually the purchase price plus any capital improvements you haven’t yet deducted) and the sale price. You also might have depreciation to recapture. Depending on your taxable income this can be a lot in tax to just sell outright.
Now what if you could sell it, pool the money into an investment vehicle and get a tax deduction to offset any gain you might owe? That would be great, wouldn’t it?
Many people don’t know that there is a special vehicle that if structured right, can not only alleviate the hassle of being a landlord, but will also assist in estate planning. It’s called a Charitable Lead Trust, or its sister Charitable Remainder Trust.
Contact my office today and I’ll be happy to refer you to an expert who will inform you and let you know if vehicle is right for you.
Athena Paquette, M.A.
Mortgage Advisor, Stratis Financial, Inc.