The past several years have been very profitable for many real estate investors. But the market is changing and it may be the perfect time for investors to be on the lookout for the latest strategy. For those who own rentals, the trend was to buy a rental property, see it appreciate, and buy another rental property using a 1031 tax-deferred exchange to eliminate current capital gains taxes on the profits. However, there simply aren’t as many solid investment properties available in today’s real estate market. The sharp increase in real estate prices hasn’t remained in balance with rental income. If you are thinking about selling your investment properties now, you probably are concerned about the massive tax bill you will face.
Low rent income, demanding tenants and a huge amount of equity at risk have caused all real estate owners in order to consider selling their real estate. But there are countless investors who feel they are “stuck” with property right now that they’d rather sell. A lot of people are hesitant to reinvest in a new 1031 exchange property due to the fact that its low rental rates, but are unwilling to cash out on the property out of fear of paying considerable capital gains taxes. The excellent news is that for most investors and owners, it is very important to know and understand that a Private Annuity Trust presents a way to defer the paying capital gains taxes, thus creating a lifetime income and protect your assets also.
With the Private Annuity Trust, real estate investors have a safe and legal way to exit from the labor of property management, the aggravation of dealing with tenants, and the anxiety of wondering how property values will fare in the current real estate market.With the Trust, there is no pressure to just reinvest immediately to avoid paying capital gains.
Prior to the sale of the property is final, the property is transferred into the Private Annuity Trust. The Trust assets are protected from creditors and lawsuits, and the assets in the Trust can at the end of the day pass to the seller’s beneficiaries without worrying about the 46% estate tax rate which is the prevailing rate. They just want to sell some of their assets and place their money into a more diversified, completely protected, lower maintenance investment vehicle with predictable cash flow.
If no money is paid from the trust, taxes are further deferred until the payments actually are received and the money can sit and accumulate interest until the seller needs the income. If you began investing in real estate because of the freedom to earn on your own terms, you may be wondering why you now feel stymied by tax codes, volatile markets, and aggravating property management responsibilities.