Is it time to sell your highly appreciated property?

In the recent months, the slowing economy and tighting of credit has now made apparent the uncertainly of demand in the commercial real estate market. Thus far, the commercial real estate market for investors has held up relatively strong, however, the affects of the housing market turmoil is now trickling down to the once robust commercial real estate market.

The long term outlook still remains strong for investors that can bear a significant slowdown. However, for those that are looking to sell in the short term, this might be the best to time to weigh your options and consider implementing tax deferral strategies like the Deferred Sales Trust™. The Deferred Sales Trust™ strategy has allowed our clients to sell their property, defer taxes, and have the flexibility to invest back into real estate at a later time. Moreover, it has allowed our clients the opportunity to create liquity and protect their assets from the claims of creditors and litigants. (Asset Protection)

It's my goal to keep clients abreast of all the issues and opportunities in the market. Thus, now might be the appropriate time to evaluate whether you should take advantage of this unique tax deferral trust.

As always, please call me anytime should you want to discuss the market outlook or your particular real estate holding(s) or needs.

Sincerely,

Alex Ruggieri, CCIM, MBA
Senior Investment Advisor

Deferred Sales Trust FAQs

Q. What is a Deferred Sales Trust?
A. A Deferred Sales Trust TM - DST TM is a strategy that allows a Client to sell an appreciated asset, receive the proceeds as liquid cash and pay capital gains taxes over many years rather than immediately. The possible benefits include reliable income from the trust, flexibility in how the trust is invested (i.e. bonds, stocks, or real-estate), protection from lawsuits and creditors, and with the proper planning, the assets can be arranged to pass to your beneficiaries estate and gift tax free.

Q. Will I be taxed when I transfer the asset to the trust ?
A. No. When properly structured, there is no taxable gain in the transfer.

Q. If I don't report any taxes upon the transfer or subsequent sale of the transferred property, when do I incur taxes in a deferred sales trust transaction?
A. The individual receiving the payments will report the income as it is received from the trust making the payments.

Q. How am I taxed on the payments?
A. Part of each payment is returned to you tax-free as a return of your basis. The remainder of each payment is taxed partially as capital gains and partially as ordinary income. Some depreciation recapture may have to be accounted for as well, depending on the type of asset sold.

Q. Would it be more beneficial to sell direct to a third party under the installment sales rules?
A. There are several reasons why a direct sale may not be advantageous to the seller. First, the installment sales rules may not be applicable. For example, the sale of publicly traded stock is not allowed to be reported under the installment sales method and therefore there is no oportunity to defer the gain recognized on the transfer of appreciated publicly traded stock. Second, installment sales place the risk of loss of the asset on the seller. Lastly, 1245 accelerated depreciation recapture has to be recognized fully in the first year of sale when using the installment sales ules.

Q. Why should I consider a deferred sales trust?
A. A properly structured DST can provide estate tax savings while affording tax deferral asset protection, investment diversification opportunities and financial privacy.

Q. Is this a loophole that will be closed by the IRS?
A. It is in the tax code IRC 453. The IRS originally determined that certain transactions would qualify for special tax treatment in 1969. Since that time, the IRS has attempted to reduce the opportunities to abuse these types of transactions but has never suggested eliminating insallment sales.

If you would like more information on whether it is time to sell your highly appreciated real estate asset, please visit the blog of Bob Yale, Managing Director of Sperry Van Ness/ComVest Realty.