“The difference here is it’s not a continuity structure where you’re selling something and moving into another thing you’re owning. It’s an exit plan.” – Brett Swarts
How to Defer Bitcoin Capital Gains Through A Deferred Sales Trust
The difference here is it’s not a continuity structure where you’re selling something and moving into another thing you’re owning. It’s an exit plan.
My understanding is that I can create a trust, transfer the assets to the trust, functionally sell the assets, even though I’m not, I guess technically doing the ones selling it, you have a trustee managing that, as long as you don’t receive the gains personally, you can keep the assets in the trust. First of all, is that a fair summary?
You actually nailed it. But let me just do some clarifying pieces in between there. What you’re doing is you’re lending the funds to the trust. We’re actually doing a cryptocurrency deal right now. Our client bought Ethereum, and for 100,000, it’s worth about 12 million, when you take the first 5 million, and he’s going to transfer it from his Kraken account to the newly formed trust account. But he’s not going to exchange it, he’s not going to have that other account payment, anything. In fact, it’s going to be just a direct transfer. Kind of like if you were to transfer funds to a Qualified Intermediary if you’re doing a 1031 Exchange, kind of like that. Kind of like if you were to put funds into an IRA, kind of like you put funds into a 401k. The difference here is it’s not a continuity structure, where you’re selling something and moving into another thing you’re owning. It’s an exit plan, where you’re literally exiting your position in exchange for a promissory note and becoming the lender. In this scenario, he’ll be owed back to 5 million-plus a rate of return, but he hasn’t received any of the 5 million. Therefore, it’s in a deferral state, kind of like an IRA, 401k, kind of like 1031 Exchange.
Okay, I actually did not know that. So that makes sense. So basically, you’re transferring the assets to the trust, but the more appropriate way to sit is that you’re lending the assets of the trust. Is that fair?
And the trust can pay you back. When you do receive those payments, you are going to be taxed at Capital, or I guess the income level at that point.
Or tax deferral, not tax avoidance. This is very important. This is why the IRS looks at this, it’s IRC 453, based upon nine-year-old tax law, which is an installment sale. You’re saying, look, IRS, I owe the file tax liability on that $5 million. Let’s say in this scenario, it’s two. I know I owe that two the government says yes, thank you, Hunter, for showing that you owe that to us. And but as you receive payments, if it’s interest payments, you’ll pay ordinary income tax on those interests of the 5 million. If you dip into principal, you’ll pay capital gains tax. But here’s the kicker, that 2 million that you owe the government, it’s at a zero interest rate.
The question is When would you like to pay 0% interest back to the government? The answer is, I’ll answer for you never. You want to keep that in a deferral state. Now you eventually will pay it and you’ll pay the ordinary income tax. It’s not like we’re never gonna pay tax is just like a 401k or a 1031 or an IRA. When you pay tax on that. Well, when you start receiving payments, well when you start receiving payments, and this is the key. When is it work for you? A lot of our clients will delay for a couple of years, especially if their incomes are high. In the meantime, they can use the funds they can go back into active or passive real estate deals or stocks bonds, mutual funds, or hard money lending. We can diversify the equity into multiple things. It’s perfect for the cryptocurrency person. Who’s hit the home run lottery on the Ethereum or whatever right to sell diversify and then get some cash flow going.
Closed Deal Story
Can I Save Capital Gains Tax When Selling Cryptocurrency? The answer is, “YES.”
Silicon Valley Technology Expert Finds A ‘Deferred Sales Trust’ To Break Open A Clear Path To Sell Cryptocurrency To Defer Capital Gains Tax
Can I save capital gains tax when selling cryptocurrency? The answer is, “yes.” About 7 years ago, Peter and his wife purchased their first Ethereum. Who would have anticipated that the value would have increased by thousands of percent in just a few years? Peter, who has worked in the technology field for more than 20 years, saw a great opportunity to sell in late 2017, however, without a clear legal plan to defer the large capital gains tax, found himself feeling trapped by the consequences of selling.
Peter held on to his belief in the fundamental value of ethereum and the potential business opportunities it brought to end-users during the 2018 crash when the value of ETH fell from $1,432 to below $90. “That was a tough pill to swallow,” Peter continued. Fortunately, everything returned in 2021, and much more. In early 2021, Peter met Jessica Lanning of Lanning Financial who told him about the Deferred Sales Trust and introduced him to Brett Swarts of Capital Gains Tax Solutions. Then in May of 2021, ETH reached an all-time high of $4362. “I knew it was time to sell at least a big portion of my stock since I didn’t want to miss this opportunity again. Let’s just say it’s been a long three years since the high in 2018.”
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Want to learn more? Check Out The Blogs Below!
- Can a Deferred Sales Trust Be Used for Mergers and Acquisitions?
- How to Defer Capital Gains Tax When Selling Your Cryptocurrencies
- Need An Exit Strategy? The Deferred Sales Trust Might Be the Answer