Tips For Reducing Tax Exposure During A Sale Of A Highly Appreciated Asset

Selling a highly appreciated asset is a double edge sword

. Everybody concentrates on buying their asset low and selling it high, but many people neglect to consider how much of the sales proceeds they get to keep. Of course realizing sizeable gains are attractive, but capital gains tax treatment can often erode a large portion of the profit.

A capital gains tax is asessed on the difference between the purchase price and sales price of an asset. Capital gains are usually linked with life insurance policies sold as life settlements, stocks, bonds and real estate among other things.

Charitable Installment Bargain Sales are emerging as a new method for minimizing capital gains tax exposure. The strategy changes what is typically a taxable occurrence into an opportunity for a tax deduction.

Charitable Installment Bargain Sales work by first having the asset owner sell the asset at a discount to a recognized charity. That is an important distinction that the sale is made between a charity and the seller. The difference between the discounted sales price and the actual market value count as a charitable donation. An appraisal is needed to establish the true market value of the asset. Thus the seller, now a donator for a portion of the asset's actual value, receives a tax deduction. The charity then agrees to pay the asset seller a predetermined amount in installments over a predefined period of time.

The charity then either sells the asset or holds it for appreciation. However, the charity typically purchases an annuity that guarantees the asset seller's installment payments for the duration of the payment term. The charity of course benefits by collecting the asset at a discounted price from its actual market value.

Charitable Installment Bargain Sales are being used successfully with a number of different assets. Specifically the strategy is gaining popularity in the life settlement industry. In addition, it is has been used when real estate sellers want an exit from 1031 exchanges without incurring hefty tax bills.

Not every asset sale is right for a Charitable Installment Bargain Sale. Although it is prudent to evaluate all tax strategies as a consideration when planning to sell any asset. Charitable Installment Bargain Sales are a new but increasingly popular strategy to preserve more of the profits from an asset's sale.

by: Kelly Ramirez

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