Tax Mitigation Strategies

If you are fortunate enough to own property or investments that have appreciated significantly, the federal, and perhaps your state, government is patiently waiting to tax your profits when you sell. Luckily there are a few ways to delay or avoid the tax debt when the appreciated asset is sold.

An owner of real estate can sell their real estate and use the proceeds to purchase another piece of real estate without paying taxes if the formalities of IRS code section 1031 are followed. The favorable tax treatment of a so-called 1031 exchange used to apply to artwork as well, however the new tax laws eliminated the application of the 1031 code section to artwork.

Investors who realize a capital gain from any source (stocks, real estate, art and privately held business interests) can continue to defer taxes on the realized gains by investing their gains in specially designated economically distressed areas that have been designated as opportunity zones under the Tax Cuts and Jobs Act of 2017.

Another option is the use of an installment sale. Prior to the sale, an entity that is created and controlled by the seller purchases the appreciated asset in exchange for an installment note at the intended sale price and that entity sells the asset to the ultimate purchaser. Then the seller takes periodic income from the entity and only realizes gains as income is received.

Finally, a charitable remainder trust can allow the owner of appreciated property to not only avoid paying capital gains tax but to also receive a current tax deduction. The sale proceeds can be managed in any way desired and the sellers can receive a steady income from the sale proceeds for a term of years or for life or joint lives. Any assets remaining in the trust at the death of the sellers will go to the charity of the sellers’ choice.

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Keith Singer

Keith Singer, a well-known financial advisor in Florida, is both a CERTIFIED FINANCIAL PLANNER™ (CFP®) practitioner and a licensed Florida attorney.

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