Highly Appreciated Asset Tax Deferral Strategy
If you own investments that have experienced significant appreciation since you purchased them, when it’s time to sell, ideally you’d like to find a way to avoid the capital gains tax that can take a big bite out of your profit.
An Intermediated Installment Sale is a 1031 exchange alternative, designed to allow investors who own highly appreciated assets to liquidate those assets and reallocate them in such a way that they provide income while delaying the payment of capital gains taxes. Especially in recent years, it has become increasingly popular among investors seeking to avoid capital gains taxes on commercial real estate sales and sales of other high-value investments.
Here’s how it works:
Your asset is transferred into a trust overseen by a third-party trust account manager with you as the designated beneficiary. The trust will sell the asset and then distribute the proceeds of that sale to you over time according to a prearranged installment contract. The sales proceeds can be held as cash or reinvested to build additional value. No capital gains taxes are realized until the installment payments touch the principal. The installment agreement remains flexible in order to allow the beneficiary to control the capital gains tax exposure.
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