Capital Gains Tax Deferral and Strategies – A Guide
We are about to see the greatest wealth transfer on the planet. In the next 20 years, about $32 trillion will be transferred from the Baby Boomers to Millennials.
That means that thousands of high-net-worth individuals are ready to retire, sell a business, get out of real estate, or sell a high-end primary home.
You would never go into retirement without a strategy. In the same vein, you don’t want to exit a high-end asset without a solid understanding of your exit options and strategy. We specialize in capital gains tax deferral strategies to help you realize your vision for your wealth. Do you want to get out of real estate? Start a new business? Retire? Use your crypto gains to get into the real estate market? Leave a wealth legacy for your heirs? We can help you tailor your exit plan to achieve your goals, all while deferring capital gains taxes to achieve optimal timing.
We can help you unlock a transformational wealth plan that provides liquidity, diversification, freedom from debt, and security all in a legal, tested, and proven framework.
Real Estate
If you managed to buy property at the right time and are now looking to sell it in a booming real estate market, there is a possibility of significant financial gain.
Stocks
Bitcoin and Cryptocurrency
Sale of Business
Sale of Farmland
The price of farmland has been increasing steadily for several years now. Many farmers and ranchers are ready to cash in by selling land to eager commercial and residential real estate developers.
Capital Gains Tax
Deferral Strategies Explained
When you sell highly appreciated assets, you are obligated to pay capital gains taxes. The federal rate for long-term capital gains is 20%. In states like California, you owe an additional 13.3%. Therefore, on net proceeds of $1 million you could owe upwards of $330,000 in capital gains taxes as soon as you realize gains in your asset.
Strategies such as the 1031 Exchange and the Deferred Sales Trust seek to defer the realization of capital gains, thus delaying your obligation to pay capital gains taxes. Instead of realizing your gains in a lump sum, you can reinvest your funds and continue to leverage those gains before paying taxes.
In contrast, a Deferred Sales Trust is a tax deferral tool that allows for far more flexibility and diversification than a 1031 exchange. It is a type of “installment sale” in which an investor sells their highly appreciated asset to a Deferred Sales Trust in exchange for a promissory note. This third-party trust disposes of the asset, reinvests the proceeds, and pays the possessor of the promissory note in installments over a predetermined amount of time.
The Deferred Sales Trust is a completely legal, tax-efficient way of unlocking your vision for your wealth. We pride ourselves on helping clients clarify and achieve their financial goals—whether that be retirement, increased liquidity, diversification, or passing wealth onto their heirs without a heavy estate tax. When it comes to managing and growing your wealth, timing is everything. Make time your friend with a Deferred Sales Trust.
Who Qualifies for a
Deferred Sales Trust?
A Deferred Sales Trust is a strategy that can be utilized to defer capital gains payments when you exit highly appreciated assets such as:
- Commercial real estate
- Businesses
- Stocks
- Cryptocurrency
- Vacation homes
- Primary residences
The only requirement is that it be a big enough gain for a deferral strategy to make sense. We have found that sellers with $1 million in gains, and who will have $1 million in net proceeds after the sale, make good candidates for the Deferred Sales Trust. If this describes you, we would love to work with you.
What are the Steps to Get Started?
Step One: Schedule a One-on-One Consult with a Member of Our Team
At this initial consultation, we will talk with you and your trusted financial advisor to give you a thorough explanation of the Deferred Sales Trust framework. In this private phone call, we will discuss your financial goals and objectives to determine if a Deferred Sales Trust is a good fit to help you achieve your financial aspirations. Also, we will walk you through your current capital gains tax liability and then explain how to execute a Deferred Sales Trust.
We want you to feel confident that the Deferred Sales Trust strategy will work for your unique situation. We will share the Deferred Sales trust’s 22-year track record with you, including 2000 closed cases and 14 IRS audits (with no proposed changes).
Before we end the call, we will give you changes you can implement to your deal or escrow immediately to ensure you can access all options to defer capital gains payments. This initial consultation is absolutely free and does not require any obligation to continue with us.
Step Two: Set Up a Conditional Engagement Agreement
In this step, one of our partners and our tax attorneys will work with you to build the structure of the deferred sales trust for your specific situation and weave it into your transaction. Timing is important here, as you don’t want to move forward with your exit until you have the language for a deferred sales trust in place, just in case you decide you want to use it.
This agreement is 100% conditional. The Deferred Sales Trust attorneys and Capital Gains Tax Solutions aren’t paid unless you choose to move forward with the DST and your escrow closes.
Step Three: Make a Decision
If you decide to move forward with the Deferred Sales Trust, we want to meet with you again to give you further clarity on the DST and your return on investment. If you are willing to give us just five hours of your time and energy, we can get you to a point where you are very comfortable with the Deferred Sales Trust, its track record, and the way it can work for you.
We will get a grasp of your challenges and opportunities. We will answer your questions and clarify what might confuse you about the Deferred Sales Trust. As we work and learn together, we will gain an understanding of your risk tolerance and goals for your investments. We will give you the opportunity to talk with the financial advisors, tax attorneys, third-party real estate groups, and banks we work with to explore the variety of investment opportunities available to you using your deferred capital gains.
We will connect you with past clients in similar situations to your own so that you can hear from them how the Deferred Sales Trust helped them create and preserve more wealth.
Step Four: Execute
If you want to use the Deferred Sales Trust, you need to decide before close of escrow. We will work with the escrow company or the closing attorneys to ensure everything is structured properly.
At closing, you will receive a promissory note from us. You will be able to defer your capital gains obligations. We will get instructions from you on how you want to be paid back over time, which will be built into the promissory note.
After that, we will start investing the principal based on your approval of the investments and your risk tolerance. Now, you can begin earning money from the funds that would have otherwise gone to Uncle Sam.
Who is an Ideal Candidate
for the Deferred Sales Trust?
We believe the Deferred Sales Trust is the best-kept secret for high-net-worth individuals who want to defer taxes on their capital gains and turn them into income-generating assets. You are an ideal candidate for a Deferred Sales Trust if:
- You feel trapped by the real estate and timing requirements of a 1031 exchange and want to buy real estate or other assets on your own schedule.
- You are selling your primary residence, and you don’t qualify for the $250,000/$500,000 exclusion, or the exclusion isn’t enough to offset your capital gains tax.
- You want to sell high and then wait for a favorable market before buying again, all on your own time and tax-deferred.
- You are tired of managing real estate and want to leverage your assets for more time, financial freedom, diversification, liquidity, and security.
- You are selling your business and want to reinvest and profit from your funds rather than pay the IRS.
- You have highly appreciated cryptocurrency assets and want to diversify your holdings.
- Your investment real estate depreciation schedule is low or even at zero, and you want a new depreciation schedule when you purchase your next investment property.
- Your net worth is above $11 million/$22 million (single/married), and you want to move funds outside of your taxable estate to eliminate the 40% estate tax.
- You want a rescue plan for a failing 1031 exchange–think of it as a backup plan in case the 1031 exchange doesn’t work out.
- You are part of a group or a partnership selling an asset, and you don’t want to have to remain together.
Why Choose Capital Gains Tax Solutions?
Experience
We know Deferred Sales Trusts inside and out, and you can trust our experience and expertise. Collectively, we have over 16 years of experience building Deferred Sales Trusts and 20 years in investment real estate. While the concept of a DST is simple, it requires multidisciplinary experts to pull off, and we have a track record of working closely with CRE Syndicators, CPAs, Financial Advisors, and Real Estate Professionals to give them the tools to meet their clients’ exit goals.
We have assisted clients with over $500 million of transactions in Deferred Sales Trust, 1031 exchanges, multifamily brokerage, and commercial real estate. If you are wondering how to reduce your capital gains tax burden, you can trust that we know this industry and can find the best solution for you.
Tested Process
Many new clients have never heard of the Deferred Sales Trust and question its legality and feasibility. You don’t need to worry. We have had over 14 IRS federal audits and eight state audits, all of which have closed with no changes.
The Deferred Sales Trust has been successfully tested in essentially every financial market over the last 30 years. To be sure, we also offer lifetime audit defense at no additional charge.
Pressure Free Promise
We promise to give you a really good look at what we do and how we might be able to help you. If you like it and feel like it fits, then go ahead and make a decision and move forward, and let’s get started today. But we want to let you know that if you don’t like it, that’s completely okay too. We promise we won’t talk you into anything as our only goal is to help you figure out what is best for you. Our only request is that you just let us know clearly one way or the other.
Brett Swarts
Brett Swarts is a Deferred Sales Trust trustee, an investment real estate expert, and a multifamily broker. He is an author, podcast host, and the founder of Capital Gains Tax Solutions.
Brett is also a dedicated husband, devoted father of five, and diehard 49ers fan. He knows how important family and community are; when individuals are given the power to manage their wealth, they can provide security for their families and invest in their communities.