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How to Defer Capital Gains Taxes

How to defer capital gains tax the smart way!

Written by Trevor Mauch:

Choosing how to defer capital gains taxes can be a difficult decision for many people. There are many choices out there that will enable you to defer and/or reduce your capital gains tax liability, but not all of them are right for everyone. In this article, I will try to help you understand some of the popular tax deferral methods and give you the information to help you make an educated and informed decision.

First off, you need to determine what your goals are with the sale of your appreciated asset. 

  • Are you selling so you have cash to place in a new investment?
  • Are you selling because you want to retire and will use the sales proceeds to help fund retirement?
  • Are you selling so you can “trade up” and roll your equity into another investment property?
  • Are you selling to pay off a debt?
  • Are you selling because you inherited a business/property and have no desire to run it yourself? 
  • Are you selling because you don’t want the hassle of managing a rental property or business but want to continue having monthly cashflow?
  • Etc……. you get the point..

You need to really decide why you are selling and what you plan on doing with your equity.  Once you decide this it is time to begin looking at your options. 

The Options

As you already know, there are as many sales options as there are sellers.  However, I will go over the most popular and widely used.  Go down the list of criteria and note the ones that fit your goals.

I want:

  • Tax reduction and deferral
  • Cash up front
  • Monthly payments of my equity
  • Yearly payments of my equity
  • To acquire new investment property
  • To consider carrying a 2nd note for part of your equity
  • Etc. (Write down all of the criteria that you want to meet)

The list above is a small list of criteria, but it helps get you started. 

Now, take a look at your options.  Popular options are: all cash sale, installment sale, 1031 exchange, charitable remainder trust, and the Structured Sale (Ensured Installment Sale). 

Click the link below to look at a pdf I put together for you that will help guide you through the process.  The pdf doesn’t go over the charitable remainder trust; however, I will go over what it is in “The Decision Process” part 2 later this week.

Structured Sale Decision Process Diagram - pdf

Print off the diagram and write down your notes on that page.  Write down what you like and dislike about each sales method and circle the method that looks like it works the best for you.  If you do not like any of the options on the diagram check back here later this week for part 2 where we describe the options more in-depth. 

On another note.  Be sure to fully research any sales method you use.  Do not only rely strictly on the advice that you receive from someone such as your CPA, Financial Planner, etc. because they may or may not be up to snuff on the newest sales and tax deferral techniques.  If your advisor hasn’t yet heard of the Structured Sale please point them to so they can learn more about it and advise you accordingly.

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