Zoinks! 25%? Seller Financing Helps you Survive the Capital Gains Attack – Installment Sale to the Rescue!
And you thought you needed capital gains strategies before . . .
Both Senator Clinton and Senator Obama have called for an increase in the capital gains tax rate. It’s currently at 15 percent, and they’d like to see 20 or even 25 percent. Property owners, more than ever before, need to learn intelligent use of the installment sale to avoid the wealth-sapping wonders of the IRS.
But hey, we all have to do our part to bail out the speculators, don’t we? Where do I sign up? Of course, I want to do my best to be patriotic, yes, of course.
But will all the other middle class property owners join me?
Both senators have said an increase in capital gains taxes would increase federal revenues, but when the tax was raised in 1986, from 20 to 28 percent, tax receipts went down, not up. People just stopped realizing their capital gains.
And how do people stop realizing capital gains? When it comes to property, there are several ways:
- Do a 1031 exchange into another property or a TIC (talk to Bill Exeter)
- Carry paper using the installment sale (seller financing, owner financing, taking back a note). For an example of how capital gains work, read the “Capital Gains” segment in this article.
- Use a “structured sale” which is similar to an installment sale, but the payments are coming from an annuity instead of the buyer (to learn more about this option, talk to Julie Sagatelian)
With capital gains already hefty (a total of 25% between Federal and State for California), I predict that any increase will have more and more people scrambling to learn how to structure a good seller carry back note. The installment sale is a great strategy for people who want to:
- defer capital gains
- create a hassle free income for retirement (no tenants, toilets or taxes)
- leave a great inheritance
I want to carry paper, please help me create a valuable note.
If I Carry Paper, How Much Will I Get Each Month?
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Great post. I will probably never live long enough for me to understand why politicians think raising the capital gain tax rates would actually increase tax revenues.
An increase in capital gain tax rates actually reduces the number of transactions so that there are also fewer brokers commissions, fewer escrow fees, fewer title insurance premiums, and so on. The net tax revenue loss is impossible to calculate accurately, but it certainly does not help the economy!
We should cover this on the radio next month when you join us back in studio again!
Hope all is well.
I’ve been interested in taxes for longer then I care to admit, both on the individual side (all my employed life!!) and from a legal standpoint since passing the bar and following up on tax law. I’ve provided a lot of advice and rectified a lot of wrongs, and I must say that what you’ve posted makes utter sense. Please carry on the good work – the more people know the better they’ll be equipped to cope with the tax man, and that’s what it’s all about.
Thanks to both of you. Really appreciate the comments. Deferring capital gains is increasingly going to become an extreme sport!
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