Strategy To Reduce Capital Gains Tax Exposure
Highly appreciated assets can be a double edged sword. The focus of investors is often on buying an asset low and then selling it high. However, some people neglect to consider how much of the proceeds they will keep after taxes. Of course realizing a profit from selling an appreciated asset is important but some consideration should be given to the capital gain implications of sale.
In the United States, a capital gains tax is a charged on the profit realized from the sale of a non-inventory asset that was purchased at a lower price. Some of the more common assets associated with capital gains are bonds, stocks, real estate or life insurance when sold in a life settlement.
A new strategy to reduce the tax liability of a capital gain is the Charitable Installment Bargain Sale. As an asset becomes more highly appreciated the strategy becomes more attractive. It has the ability of changing a sale of an asset from a taxable event into a tax deduction.
A Charitable Installment Bargain Sale occurs when an asset is sold at a discount from an asset owner to a charity. The difference between the asset's market price, which is established by an appraisal, and the actual sales price creates a charitable contribution. Consequently, the asset seller is entitled to a tax deduction. The charity then pays the asset seller in installments over a predetermined amount of time.
Once an asset is purchased by a charity, it can be resold or held. The asset's seller is paid in installments usually funded by an annuity. The charity benefits by obtaining a valuable asset at a discounted price.
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.
Charitable Installment Bargain Sales will not be the most appropriate solution for every asset sale. However, it is always prudent to identify ways to retain more of an asset's profit and to fully understand the options available. Then asset sellers can move forward armed with the most educated strategies.
Article Source: FxTradingStock.com
About the Author
Want to find out more about a life settlement and taxes, then visit Kelly Ramirez's site on how to plan for life settlement taxation.
by: Kelly Ramirez
Total views: 63
Word Count: 381
Date: Sat, 12 Jun 2010
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