Saving Taxes on Real Estate Dispositions

By Karen Wilson-Fontaine

Have you often thought about selling your property only to be stopped by the reality of losing a huge amount of your money to state and federal taxes?  Would you like a steady income stream without the management headaches of ownership?  The good news is that there are several methods of selling real property that will help you achieve your goals.

IRC 1031 Exchange

Internal Revenue Code 1031 allows an owner to exchange one property for another “like” property with taxes deferred if all of the code requirements are met. A property exchange involves finding a buyer for your property and locating another property that you wish to buy.  The “exchange” is done during escrow with the proper documentation prepared by an attorney or exchange accommodator stating your intent to exchange your ownership in one property for ownership in the other property.  Exchanges can be entirely or partially tax deferred.

Seller Financing

The seller of property carries back a loan for all or part of his equity with payments that can be all interest or principal and interest.  The note can be structured as a first loan, second loan, “wrap-around” the current financing, or even be secured by a different property.  The seller pays taxes only on the money he actually receives.

Fractional Group Ownership

Due to recent clarifications of the tax code it is now possible to exchange your current property for a fractional interest in a property with several owners.  Generally these are conservatively structured net leased properties with income paid to you monthly.   The properties being syndicated are located all over the country.  An office building recently available in Texas had an income stream of about 7% annually to the owners.  Some of these fractional ownership interests are sold through real estate brokers and others are available from stockbrokers.

Private Annuity Trust

The Private Annuity Trust allows individuals or companies to sell their appreciated real estate without taxes at the time of the sale. The real property is exchanged for a Trust-held, Private Annuity Agreement.  This allows the property owner to sell today, and have 100% of the funds structured to provide an income stream for their retirement.  Taxes are due ONLY on the funds one receives from the trust.  

If you have been considering ways to increase your current cash flow, buy additional property, or move your real property assets into a steady income stream, one of these vehicles may help you achieve your goals.  Please consult your legal and tax advisors  prior to the sale of any real property asset.

Karen Wilson-Fontaine is a Real Estate Broker with Intero Real Estate Services located at 1601 Railroad Ave. in Livermore, CA 94550.  She has over 25 years experience in investment property sales and acquisitions. Karen can be reached at (925) 960-6724 or Karen@Wilson-Fontaine.com .