Capital gain from sale of rental property

[Purron]

My DH and I have a rental property which, if sold, would result in a capital gains tax of about $50,000. We have considered moving back to the place for 2 years to get the capital gains exclusion or doing a 1031 exchange, but both of these options are not ideal for us. I saw something on the net about “structured sales annuities” and “ensured installment sales” which sound like ideas worth exploring. The basic idea is you convert the cash from the sale into an annuity which would spread the capital gain over 10 years or more. You would still pay the capital gains tax but it would be deferred which would clearly be an advantage. This idea was developed by Allstate and I believe Prudential marketed this product as well. I would be interested in knowing your thoughts on this.

 

[retire@40]

...You would still pay the capital gains tax but it would be deferred which would clearly be an advantage..

Are you sure about that?

The capital gains tax is not deferred. The capital gain is deferred.

Capital gain is taxed in the year recognized at the capital gain rate for that year. Right now your CG rate would probably be 15%. In a few years that rate might be higher, who knows.

 

[outtarentals]

My DH and I have a rental property which, if sold, would result in a capital gains tax of about $50,000. ...... I saw something on the net about “structured sales annuities” and “ensured installment sales” which sound like ideas worth exploring. The basic idea is you convert the cash from the sale into an annuity which would spread the capital gain over 10 years or more.


I'd be very interested in knowing more about this.
The article about them that I found on the internet was copyrighted in 2005 - so it seems they've been around a few years, but I hadn't heard of them before. As Retire at 40 pointed out though, capital gains taxes could change from the current 15% Fed (and in my case 9.3% State).

Several years ago my FA's were pushing Private Annuity Trusts (PATs) as exit strategies. They did not suit my particular situation (too restrictive) and were disallowed by the IRS sometime in 2006, but people who had set them up before that date were grandfathered in. Charitable Remainder Trusts are another possibility for some people.

 

[Patrick]

My DH and I have a rental property which, if sold, would result in a capital gains tax of about $50,000. We have considered moving back to the place for 2 years to get the capital gains exclusion or doing a 1031 exchange, but both of these options are not ideal for us. I saw something on the net about “structured sales annuities” and “ensured installment sales” which sound like ideas worth exploring. The basic idea is you convert the cash from the sale into an annuity which would spread the capital gain over 10 years or more. You would still pay the capital gains tax but it would be deferred which would clearly be an advantage. This idea was developed by Allstate and I believe Prudential marketed this product as well. I would be interested in knowing your thoughts on this.

So you will make $333K on the sale? Congratulations!

 

[Patrick]

Are you sure about that?

The capital gains tax is not deferred. The capital gain is deferred.

Capital gain is taxed in the year recognized at the capital gain rate for that year. Right now your CG rate would probably be 15%. In a few years that rate might be higher, who knows.

Yeah, once the Democrats get elected you can be sure that the cap gains rate will increase.