Disposition Of Appreciated Assets

Sell for Cash

  • You could sell your appreciated property for cash.

  • You would pay the tax on the gain by the next tax return due date.

  • You would be able to do whatever you wish with the money after paying tax without any restrictions.

  • If you sold California real estate you would have to withhold at 3.33% on the sales price or cash received.  As an alternative, you could elect to pay the California tax rate on the gain from the sale.
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Sell and Elect Installment Sale Treatment

  • Pay capital gains tax as you receive principal payments on an installment note.

  • Money in note and money in your hand after paying tax.

  • California real estate withholding is at 3.33% on the sales price or cash received.

  • Buyer can elect to withhold California tax on each payment instead of withholding the full amount at the time of sale.
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Sell and Elect a Structured Installment Sale

  • The qualified property can be a piece of highly appreciated real estate, or an interest in a business or professional practice.

  • Instead of the buyer guaranteeing the periodic payments, the buyer pays cash, and the obligation to pay the seller is transferred to a third party assignment company.

  • The assignment company uses the balance to pay each payment, purchases an annuity from a life insurance company, or otherwise makes high quality investments and pays the seller at an agreed upon rate.

  • The payments are flexible. They can start immediately or be deferred to last their entire life, or for a defined term with payments by month, quarter, half-year or year.

  • The tax consequences are the same as if the buyer were making installment payments directly.

  • For more information see Structured Installment Sale.
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Accomplish a 1031 Exchange and Purchase a Property You Manage

  • Both the Relinquished Property and the Replacement Property must be held either for investment or for productive use in a trade or business.

  • The property must be Like Kind Property. Real property must be exchanged for real property. Personal property must be exchanged for personal property.

  • There must be an actual reciprocal transfer of properties - a deed for a deed.

  • You must identify the property you wish to acquire by the 45th calendar day from the close of your escrow and you must acquire the property you have identified by 180 calendar days of the close of your escrow. 

  • You must use all of the net proceeds from your Relinquished Property in the purchase of your Replacement Property.

  • You must also obtain a mortgage on your Replacement Property equal to, or greater than, the mortgage on your Relinquished Property.

  • For more information see Delayed 1031 Exchange.
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Accomplish a Reverse 1031 Exchange

  • A reverse 1031 exchange occurs when the replacement property is acquired before the relinquished property is sold.

  • To accomplish a reverse 1031 exchange, either the relinquished property must be transferred to the accommodator before you close escrow on the replacement property, or the accommodator must take title to your replacement property.

  • You need to have sufficient funds to acquire the Replacement Property without access to any proceeds from the sale.

  • For more information see Reverse 1031 Exchange.
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Accomplish a Build-to-Suit 1031 Exchange

  • The relinquished Property is sold, and the proceeds are held by the accommodator.

  • The replacement property is purchased in the name of the accommodator.

  • The accommodator uses the relinquished property proceeds to make improvements to the replacement property.

  • Improvements must be made within the 180 day exchange period.

  • You may not improve a property that you already own.

  • For more information see Built-to-Suit Exchange.
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Sale of a Dental Practice

  • The equipment and certain assets of a relinquished dental practice can be 1031 exchanged for equipment and assets of a replacement dental practice.

  • An allocation of the sales price of the relinquished dental practice must be made to separate items that can be 1031 exchanged, and items that cannot.

  • You must identify the equipment you wish to acquire by the 45th calendar day from the close of your escrow and you must acquire the equipment you have identified by 180 calendar days of the close of your escrow.

  • For more information see Dental Practice.
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Sale of a Principal Residence

  • You may exclude up to $250,000 in gain on the sale of a principal residence if you owned and lived in it for two years out of the last five years.

  • The exclusion applies to only one sale every two years.

  • A $500,000 exclusion applies to certain joint returns if the spouses are living together and either spouse meets the ownership requirement.  Both spouses must meet the use requirement and neither spouse has had a sale in the preceding two years.

  • You may be able to convert the character of investment property to a principal residence and take advantage of the exclusion. 
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Reverse Mortgage

  • A reverse mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you continue to own the home.

  • Rather than paying your lender each month, the lender pays you monthly payments, a lump sum, a line of credit, or some combination.

  • The amount you are eligible to borrow generally is based on your age, the value of your property, the equity in your home, and the interest rate the lender is charging.

  • You must be 62 or older.

  • When the homeowner dies or moves out, the loan is paid off by a sale of the property. Any leftover equity belongs to the homeowner or the heirs.

  • For more information on Reverse Mortgages please visit Green Street Realty.
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Involuntary Conversion under IRC §1033 – Condemnation Sale of Property

  • In order for your property to qualify for an IRC §1033 - Condemnation Sale of Property exchange the taxpayers must sell their property under the threat of (or imminence of) requisition or condemnation to defer the gain on the sale.

  • The IRS' position is that the threat of (or imminence of) requisition or condemnation exists when the taxpayer learns through a reliable source that a governmental or quasi-governmental entity has decided to acquire the taxpayer's property, but only if there are reasonable grounds to believe that the condemnation or requisition will actually occur.  

  • This usually takes the form of a letter from the governmental entity that is negotiating to buy your property that they will condemn it if necessary. 

  • The replacement property for real estate need merely be "like-kind." "Like-kind" means real property held either for investment or for productive use in a trade or business.

  • The replacement of personal property under IRC §1033 requires that the replacement property be "similar in use" to the personal property that was disposed of in a condemnation sale.

  • Taxpayers are granted three-years from the closing of the sale (IRC §1031(g)(4) in which to replace real estate used in a trade or business.

  • Other property disposed of in a condemnation sale is required to be replaced within two-years from the end of the year in which the sale took place.

  • You do not need an accommodator under the involuntary conversion exchange rules.

  • Taxpayers can use the cash received from a condemnation sale under §1033 any way they wish. The replacement property can be 100% financed without using any of the cash you received from the sale of the condemnation property. There are no requirements to use any of the condemnation sale cash for closing on replacement real estate.  The replacement property must only be of equal value.

  • The condemnation sale should be reported on Form 4797, and the gain should be noted as "suspended under §1033."
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Charitable Remain Trust

  • A Charitable Remainder Trust (CRT) is a tax-exempt irrevocable trust designed to reduce taxable income by first dispersing income to the beneficiaries of the trust for a specified period of time and then, when that time frame expires, donating the remainder of the trust to a designated charity.

  • The taxpayer donates assets, such as appreciated stock or land, to an irrevocable trust with two types of designated beneficiaries, non-charitable (typically yourself) and a qualified charity.

  • You generate an immediate tax deduction based on the difference between the appreciated value of the assets and the present value of the income interest in the trust retained by the non-charitable beneficiary.

  • Sale of the assets contributed to the charitable remainder trust occurs tax-free.

  • Once established, it cannot be changed.
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