Follow Patrick Linkedin Facebook
Email Patrick Email
Financial
Jan 16, 2017

Strategies For Avoiding Capital Gains Tax

Sponsored Content provided by Patrick Stoy - Mortgage Consultant/Owner, Market Consulting Mortgage

For many people, the aftermath of the holidays is associated with the disposal of Christmas trees, tinsel and decorations. It’s a time of year filled with resolutions and black-eyed peas, workout gear and the stress of facing those credit card statements from December. 

Finding a way to save money and keep more of those hard-earned funds in the bank is a common goal for many people, especially at the start of the year. Considering all the costs and headaches that owning a rental property can bring, it is easy to see why so many investment properties hit the market in January. 

The inevitable certainty of having to pay capital gains taxes will darken the mood of any investor or rental property owner.  Dreams about a hefty paycheck and a nice return on all the blood, sweat and tears that have been poured into a rental property can become just that - dreams.

It’s easy to see how finding a way to reduce capital gains tax - or avoid it altogether - could quickly become an investor’s sole purpose in life.

On a positive note to start the New Year, many believe that President elect Donald Trump is likely to reduce the capital gains tax. This has many property owners interested in delaying the realization of a capital gain opting to wait and see what Trump will do.

To provide a bit of backstory, having to pay capital gains taxes is actually a good problem to have. This is because capital gains taxes only pertain to people who have had a rental property for at least a year and have made a profit on it. Tax rates vary from zero to 20 percent, depending on the taxpayer’s adjusted gross income.

Conventional wisdom holds that a 1031 exchange is one of the best strategies for avoiding the payment of a capital gains tax. A 1031 exchange is when an investor swaps out one rental property for another of ‘like-kind’ or similar value. Since the funds are held in a trust until a replacement property is identified and purchased, the investor is allowed to defer the payment of capital gains taxes.

In light of the market appreciation we have seen over the past few years, an exchange might not be the best idea for reducing capital gains taxes anymore. Instead it may be worthwhile to consider the following strategies for avoiding capital gains tax:

  • Deferred Sales Trust – This is when a rental property owner creates a trust prior to the sale of the property. The trust then sells the property to a buyer, using a Realtor as an intermediary.The net proceeds from the sale are held in the trust, which uses the funds to invest in stocks or mutual funds at the property owner’s direction. The property owner is also allowed to carry a loan note back from the trust.
  • Charitable Remainder Trust – Setting up this type of trust can provide income for life for the property owner or anyone they specify. As the name implies, any remaining assets left over after the remaining beneficiary dies would pass along to the charity that was designated when the trust was created.
  • Installment Sale – A property owner who chooses to offer a lease/purchase option can defer some capital gains by doing an interest-only note on the property.
Of course, it is always a good idea to consult a tax specialist prior to making a decision.  If you have further questions about the mortgage process, please contact me at the number below.   

Patrick Stoy (NMLS Numbers 39527 and 39166) has 16 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or 910-509-7105.
 
 
 

Other Posts from Patrick Stoy

Mcm 14jan insight
Ico insights

INSIGHTS

SPONSORS' CONTENT
Aaeaaqaaaaaaaaidaaaajdhiztrkodm0lte2yjetngrkmy1hotrmltawmdvlmwqyztmymw

The CIE: Distanced, Not Disengaged

Diane Durance - UNCW Center for Innovation and Entrepreneurship
Michaelhiggins 41019104338

Preparing For The Loss Of A Spouse

Michael Higgins - Dignity Memorial
Tonyharrington wrar300x300

Wilmington Real Estate In 2020

Tony Harrington - Cape Fear REALTORS®

Trending News

For $100M Waterfront Project, Construction Begins

Cece Nunn - Aug 10, 2020

Developers Plan $8.5M Spec Building In First Construction At Brunswick Megasite

Christina Haley O'Neal - Aug 11, 2020

Hendrick Acquires Auto Dealership From Neuwirth Motors, Completes Moves

Cece Nunn - Aug 11, 2020

Private Preschool Opening Wilmington Location

Cece Nunn - Aug 11, 2020

Home Sales Jump 34% In July, Realtors Report

Cece Nunn - Aug 10, 2020

In The Current Issue

Major Project Would Impact Southport

The developer of River Place in downtown Wilmington is partnering with Bald Head Island Limited on a nearly 400-acre development dubbed Proj...


Dosher Foundation Gets Golden LEAF Grant

Dosher Memorial Hospital Foundation received $378,000 from the Golden LEAF Foundation for an on-site well water system at the Southport hosp...


NCino 'on Fire'

When the dust cleared on July 14, nCino, which had $138 million in revenue in its most recent fiscal year, was valued at close to $7 billion...

Book On Business

The 2020 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2020 Leadership Accelerator: Virtual Workshops for Real Leaders
2019 Health Care Heroes
August 26, 2019 Power Breakfast: A Healthy Sale?
2019 WilmingtonBiz Expo Keynote Lunch - CEO, nCino, Pierre Naude`