Exit Strategies to minimize taxes?

Question

Hey Folks,

My husband and I are planning ahead in this crazy real estate market.  Do you guys have future strategies that you are looking into to get out of real estate?  I'm not talking 1031 into some other property, but true exit strategies for estates, etc.  I know there are Delaware Statutory Trusts and Charitable Remainder Trusts, but are there other vehicles for selling your properties that we should be researching?

Thanks,Cary

Ana Garcia · Answer

@Cary Plotkin Is seller financing something you would consider? It will not eliminate your taxes, but it will definitely offer the following advantages:

- Defer your taxes paid on the gain over the life of the loan

- Keep you in the lower tax brackets if the income from the sale takes you to a higher tax bracket

It is important to know how much depreciation you have taken since you will have to pay depreciation recapture taxes for the year of sale.

Brian Eastman · Answer

@Dave Toelkes

What you suggest is simply not possible.  One may not contribute to any retirement plan "in-kind", nor can one simply dump a large value into a plan from the outside all at once.

@Cary Plotkin

While it will not eliminate taxation altogether, selling the property and carrying a mortgage would reduce and spread out the tax hit.  You would still have a solid asset and consistent returns, but without the tenant factor.

Dave Toelkes · Answer

I would ask my advisors if there is a way to transfer the property to a Roth IRA as a capital contribution, then have the Roth sell the property and retain the profit without a tax consequence.

Cary P. · Answer

TL;DR: I need key words to punch into Google..

We want out of real estate. I'm sick of dealing with bullshit tenants - I am not the police, I am not your mom, learn how to get along.

I do not want to 1031 into a passive property investment where I need to trust some other company to have my best interests at heart (Inland, AEI, etc).  I don't trust middlemen. I just want to get out of real estate because my personality is not suited for public relations.

We have a multi-unit complex.  It has appreciated nicely since we've owned it and now we want to get out of the active management of tenants into something not property related.  I am capable of finding investments for the proceeds, but I'm looking for vehicles to avoid paying 40% to the IRS.  So far, the CRUT seems the most likely, but I'm probably too young.

I want concrete ideas of things I can research myself to see what would work for me and my husband so I can go talk to my CFA, my CPA, or my tax attorney without glazed over eyes.  I know a CRUT, CRAT or GRAT will work when we are older, but I'm still in my 40s.  Are there other vehicles or are these kind of the big 3?

I'm not asking you to consider what I want to do down the line, I'm smart enough to figure that out if I know what I'm looking for. I'm trying to figure out what those vehicles are and I'll do my own research into if it is a good fit.  Once I narrow down things, I can direct my CPA or CFA knowledgeably and we can come up with a plan that will make sense to both of us. I'm proactive and don't like to be told "this is the only way" because my CPA or CFA doesn't understand or know of all of the possibilities.  I want to know what those possibilities are so I can do my own research.

Does that make sense or make me sound like a bitch?

Carl Fischer · Answer

@Cary Plotkin

I like self directed Roth IRA/401k if there was one answer. Takes care of income taxes with the least hassle in my opinion. Tax free income for life for you and your heirs in real estate, cash or any other asset.

Some also think some life insurance policies are a close 2nd.

Christopher Smith · Answer

What specific risks are you trying to address?

1) Income Tax

2) Estate Planing Tax

3) Estate Planing Succession

3) Liquidity

4) Market

5) Liability

Are these Residential Rentals, Commercial Rentals, Personal Residence?

Lance Lvovsky · Answer

What are your goals? Are you trying to provide current income to yourself and your husband? Do you want your real estate to pass to your beneficiaries? Are you looking to help any charities? These are all questions your CPA should be asking you. If you do not have a CPA, find one who can help you. There is no one straight answer. Sure, you can fund a CRUT, CRAT, GRAT, etc., but what works for someone may not work for you.

Exit Strategies to minimize taxes?

Most Popular Reply