Advanced Tax Planning

When it comes to advanced tax strategies, it is important that you hire advisors who are familiar with these concepts as involve adhering to special rules & regulations published by the IRS.  We work with many experts throughout the country who specialize in these techniques.

1031 Real Estate Property Exchanges

1031 exchange gets its name from Section 1031 of the U.S. Internal Revenue Code, which allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value.  So if you own commercial or investment grade real estate and are looking to sell, consider a property exchange which allows you to sell your property and purchase a new one and avoid capital gains taxes.  But there are many rules and regulations that must be followed to qualify for 1031 “like-kind” treatment.  Be sure to contact our office before making any decisions, listing property for sale or entering into any sales contract.

Delaware Statutory Trusts

Delaware statutory trust (DST) is a legally recognized trust that is set up for the purpose of business, but not necessarily in the U.S. state of Delaware. It may also be referred to as an Unincorporated Business Trust or UBO.  Delaware statutory trusts are formed as private governing agreements under which either (1) property (real, tangible and intangible) is held, managed, administered, invested and/or operated; or (2) business or professional activities for profit are carried on by one or more trustees for the benefit of the trustor entitled to a beneficial interest in the trust property.

DST Investments are offered as replacement property for accredited investors seeking to defer their capital gains taxes through the use of a 1031 tax deferred exchange and as straight cash investments for those wishing to diversify their real estate holdings. The DST property ownership structure allows the smaller investor to own a fractional interest in large, institutional quality and professionally managed commercial property along with other investors, not as limited partners, but as individual owners within a Trust. Each owner receives their percentage share of the cash flow income, tax benefits, and appreciation, if any, of the entire property. DSTs provide the investor the potential for annual appreciation and depreciation (tax shelter), and most have minimum investments as low as $100,000, allowing some investors the benefit of diversification into several properties.

The DST ownership option essentially offers the same benefits and risks that an investor would receive as a single large-scale investment property owner, but without the management responsibility. Each DST property asset is managed by professional investment real estate asset managers and property managers. It used to be that only large institutional investors such as life insurance companies, pension funds, real estate investment trusts (REITS), college endowments and foundations were able to invest in these properties. Now as a viable 1031 exchange replacement property option through a DST, individual investors have the ability to invest in a diversified selection of institutional quality, investment property types that they otherwise could not purchase individually. DST Investments are located throughout the United States. Property types may include multifamily apartment communities, office buildings, industrial properties, multi-tenant retail, student housing, assisted living, self-storage facilities, medical office, single tenant retail properties and others .

Monetized Installment Sales

Monetized Installment Sales (M453 Transactions) also known as “collateralized installment sales” or “C453 transactions” are based on Section 453 of the IRS Code.  This planning approach uses a third-party dealer in capital assets to defer sale proceeds (and the tax on those proceeds) for lengthy periods of time.  Because it does no good to defer taxes if you do not have access to the funds, this strategy includes a monetizing loan to provide liquidity during the installment period.

This strategy works for sales of assets that are eligible for installment sale treatment under IRS Code §453. These include privately-held business entities and assets, business and investment real estate of all kinds (business, investment, personal residences, fractional interests), as well as tangible assets like collectibles, yachts, and airplanes. However, they don’t include sales of business inventory except as part of the sale of the entire business, and they don’t include “dealer” assets which you buy for resale in the ordinary course of your trade or business, or publicly-traded securities.  Monetized Installment Sales can also be used to “rescue” failing 1031 exchanges.  Contact our office for more information and for a free analysis of your transaction.

Charitable LLCs & Other Charitable Planning

If you are a high-net worth individual looking for additional tax savings AND you have charitable intentions, you can consider various charitable entities to meet your objectives.  One of the newly emerging areas is the use of LLCs (limited liability companies) in this area.  A “charitable” LLC is not actually a non-profit entity approved by the government.  Only a corporation can be an approved 501(c)(3) organization.  However, sophisticated planners are using LLCs to meet charitable objectives of their clients and avoid the constrictive and onerous rules imposed on nonprofit corps.  Certain wealthy individuals (Mark Zuckerberg has most recently made the news) are contributing money into an LLC and the LLC will manage and distribute to chosen charities.  The members of the LLC will not receive an income tax deduction until monies are actually paid to the charity.  But, if a group of individuals wish to pool their resources and have aligned goals and objectives, an LLC might be an easier way to set up the arrangement.

For those who want to “have their cake and eat it too”, consider an aggressive approach that combines the LLC with a partner-owner charity to obtain a current tax deduction and other tax benefits along with way.  Contact our office to further discuss these and other advanced techniques.