Non Grantor Trust/Foundation to limit capital gains on RE

Tax, SDIRAs & Cost Segregation
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Non Grantor Trust/Foundation to limit capital gains on RE

Christina N.
Member since 2017 · 3 posts · 2 votes

After completing my taxes this year for my 2 rentals (just purchased last year), I have capitals gains that are affecting my taxes with my husband and our W2 jobs. We have a long term amd short term rental in a LLC in Idaho while living in Ca. We make over 300k together without the properties. We talked to a tax specialist that stated the best way to structure our properties on these capital gains is to put our properties in non-grantor trust and create a foundation. By putting the captial gains in a foundation and donating 5% to a charity, we would eliminate the pass through income gains. My husband and I are trying to find the best way to structure our properties as well as research this strategy so we can continue to puchase more properties in the future. I am having a difficult time finding more information about this since it is pretty complicated. Has anyone heard of this or know of anyone we could talk to for a second opinion?

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Don SpaffordPro Member
Investor · Idaho Falls, ID · Member since 2016 · 935 posts · 629 votes
3y

@Christina N. I have not heard of that. I can put you in contact with an Idaho attorney if you would like. You have high earned income so you need to find a way to offset that tax liability. One thing I do suggest is that you may want to look into investing in a syndication. That way it is completely passive income AND in most cases sponsors will do a cost segregation study to get accelerated depreciation in year one. How much that can be will vary by asset class and by property. I can share with you that I invest in RV Campgrounds which produce high cash flows but also potentially huge tax benefits from depreciation. Much higher than most other investments I've seen. I think I can share that one property I invested in last year, provided a 222% depreciation that I can use to offset my income. I will be happy to share more with you directly if you are interested in learning more. Feel free to send me a DM and we can schedule a call.

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  • Don SpaffordPro Member
    Investor · Idaho Falls, ID · Member since 2016 · 935 posts · 629 votes
    3y

    @Christina N. I have not heard of that. I can put you in contact with an Idaho attorney if you would like. You have high earned income so you need to find a way to offset that tax liability. One thing I do suggest is that you may want to look into investing in a syndication. That way it is completely passive income AND in most cases sponsors will do a cost segregation study to get accelerated depreciation in year one. How much that can be will vary by asset class and by property. I can share with you that I invest in RV Campgrounds which produce high cash flows but also potentially huge tax benefits from depreciation. Much higher than most other investments I've seen. I think I can share that one property I invested in last year, provided a 222% depreciation that I can use to offset my income. I will be happy to share more with you directly if you are interested in learning more. Feel free to send me a DM and we can schedule a call.

    2Reply
  • Bonnie Griffin KaakePro Member
    Real Estate Consultant · Denver, CO · Member since 2021 · 666 posts · 389 votes
    3y
    Quote from @Christina N.:

    After completing my taxes this year for my 2 rentals (just purchased last year), I have capitals gains that are affecting my taxes with my husband and our W2 jobs. We have a long term amd short term rental in a LLC in Idaho while living in Ca. We make over 300k together without the properties. We talked to a tax specialist that stated the best way to structure our properties on these capital gains is to put our properties in non-grantor trust and create a foundation. By putting the captial gains in a foundation and donating 5% to a charity, we would eliminate the pass through income gains. My husband and I are trying to find the best way to structure our properties as well as research this strategy so we can continue to puchase more properties in the future. I am having a difficult time finding more information about this since it is pretty complicated. Has anyone heard of this or know of anyone we could talk to for a second opinion?

    You are talking about some technical tax strategy here. I would highly recommend finding a good tax attorney first and get a second opinion. I have one if you need a reference. You would also benefit by getting an estimate for cost segregation on both of these properties if the purchase price of each was over $250K. This would likely off-set the passive income on each and not your W2 income. This is because you will not likely be materially participating in the STR and are not RE Professionals. You definitely need a second opinion for a tax attorney familiar with real estate investments and trusts.

    [email protected]303-475-4459
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  • Chris Davidson
    Real Estate Agent · Boise, ID · Member since 2016 · 1k+ posts · 888 votes
    3y

    @Christina N. like others mentioned I would reach out to someone who specializes in this. What I would be curious about is the exit strategy and what kind of implications there would be on a sale or could you do a 1031 on this. Sometimes you just have to pay the taxes.

    Like @Bonnie Griffin Kaake a cost seg could help, and if not at least your tax professional should be able to pull out the furnishings and accelerate them. 

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  • Todd Goedeke
    Contractor · Sheboygan, WI · Member since 2016 · 921 posts · 266 votes
    3y

    @Christina N.how do you have capital gains if you bought rentals but did not sell any properties?

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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Christina N.:

    After completing my taxes this year for my 2 rentals (just purchased last year), I have capitals gains that are affecting my taxes with my husband and our W2 jobs. We have a long term amd short term rental in a LLC in Idaho while living in Ca. We make over 300k together without the properties. We talked to a tax specialist that stated the best way to structure our properties on these capital gains is to put our properties in non-grantor trust and create a foundation. By putting the captial gains in a foundation and donating 5% to a charity, we would eliminate the pass through income gains. My husband and I are trying to find the best way to structure our properties as well as research this strategy so we can continue to puchase more properties in the future. I am having a difficult time finding more information about this since it is pretty complicated. Has anyone heard of this or know of anyone we could talk to for a second opinion?


     yea this is what's being called as CLT/CRT  in corvee software
    https://corvee.com/blog/use-ch...  (some folks here in BP really dislike this software btw).

    For me personally this is overly too complicated and seems you could delay up to 30% AGI only ? My suggestion is to contact tax professional that has worked with this approach, I know few names (from BP indirect recommendation as well).

    1Reply
  • Christina Nelson
    Member since 2018 · 2 posts · 0 votes
    3y

    This is exactly what we heard. Thank you for the link. Also, if you have some contacts, please forward them. I would love to hear what they have to say. Thanks again!

    0Reply
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