Disposition Of Appreciated Assets

Disposition strategies

Sell for Cash

Sell and Elect Installment Sale Treatment

Accomplish a 1031 Exchange and Purchase a Property You Manage

Accomplish a Reverse 1031 Exchange

Accomplish a Build-to-Suit 1031 Exchange

Sale of a Principal Residence

Reverse Mortgage

Involuntary Conversion Under IRC §1033 – Condemnation Sale of Property

Charitable Remainder Trust

Sell for Cash

You could sell your appreciated property for cash.
You would pay the tax on the gain by the next tax return due date.
You would be able to do whatever you wish with the money without any restrictions after paying tax.
If you sold California real estate you would have to withhold at 3.33 percent on the sales price or cash received. As an alternative, you could elect to pay the California tax rate on the gain from the sale.

Sell and Elect Installment Sale Treatment

Pay capital gains tax as you receive principal payments on an installment note.
Money in note and money in your hand after paying tax.
California real estate withholding is at 3.33 percent on the sales price or cash received.
Buyer can elect to withhold California tax on each payment instead of withholding the full amount at the time of sale.

Accomplish a 1031 Exchange and Purchase a Property You Manage

Both the Relinquished Property and the Replacement Property must be held either for investment or for productive use in a trade or business.
The property must be Like-Kind Property. Real property must be exchanged for real property.
There must be an actual reciprocal transfer of properties—a deed for a deed.
You must identify the property you wish to acquire by the 45th calendar day from the close of your escrow and you must acquire the property you have identified by 180 calendar days of the close of your escrow.
You must use all of the net proceeds from your Relinquished Property in the purchase of your Replacement Property.
You must also obtain a mortgage on your Replacement Property equal to, or greater than, the mortgage on your Relinquished Property.
For more information, see Delayed 1031 Exchange.

Accomplish a Reverse 1031 Exchange

A Reverse 1031 Exchange occurs when the Replacement Property is acquired before the Relinquished Property is sold.
To accomplish a Reverse 1031 Exchange, either the Relinquished Property must be transferred to the Accommodator before you close escrow on the Replacement Property or the Accommodator must take title to your Replacement Property.
You need to have sufficient funds to acquire the Replacement Property without access to any proceeds from the sale.
For more information, see Reverse 1031 Exchange.

Accomplish a Build-to-Suit Exchange

The Relinquished Property is sold and the proceeds are held by the Accommodator.
The Replacement Property is purchased in the name of the Accommodator.
The Accommodator uses the Relinquished Property proceeds to make improvements to the Replacement Property.
Improvements must be made within the 180-day exchange period.
You may not improve a property that you already own.
For more information, see Built-to-Suit Exchange.

Sale of a Principal Residence

You may exclude up to $250,000 in gain on the sale of a principal residence if you owned and lived in it for two years out of the last five years.
The exclusion applies to only one sale every two years.
A $500,000 exclusion applies to certain joint returns if the spouses are living together and either spouse meets the ownership requirement. Both spouses must meet the use requirement and neither spouse has had a sale in the preceding two years.
You may be able to convert the character of investment property to a principal residence and take advantage of the exclusion.

Reverse Mortgage

A Reverse Mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you continue to own the home.
Rather than paying your lender each month, the lender pays you monthly payments, a lump sum, a line of credit, or some combination.
The amount you are eligible to borrow generally is based on your age, the value of your property, the equity in your home, and the interest rate the lender is charging.
You must be 62 or older.
When the homeowner dies or moves out, the loan is paid off by a sale of the property. Any leftover equity belongs to the homeowner or the heirs.

Involuntary Conversion Under IRC §1033—Condemnation Sale of Property

In order for your property to qualify for an IRC §1033, Condemnation Sale of Property exchange, the taxpayers must sell their property under the threat of (or imminence of) requisition or condemnation to defer the gain on the sale.
The IRS’s position is that the threat of (or imminence of) requisition or condemnation exists when the taxpayer learns through a reliable source that a governmental or quasi-governmental entity has decided to acquire the taxpayer’s property, but only if there are reasonable grounds to believe that the condemnation or requisition will actually occur.
This usually takes the form of a letter from the governmental entity negotiating to buy your property that it will condemn it if necessary.
The Replacement Property for real estate needs merely to be “like-kind.” Like-kind means real property held for either investment or productive use in a trade or business.
The replacement of personal property under IRC §1033 requires that the Replacement Propertybe “similar in use” to the personal property that was disposed of in a condemnation sale.
Taxpayers are granted three years from the closing of the sale (IRC §1031(g)(4)) in which to replace real estate used in a trade or business.
Other property disposed of in a condemnation sale is required to be replaced within two years from the end of the year in which the sale took place.
You do not need an Accommodator under the involuntary conversion exchange rules.
Taxpayers can use the cash received from a condemnation sale under §1033 any way they wish. The Replacement Property can be 100 percent financed without using any of the cash you received from the sale of the condemnation property. There are no requirements to use any of the condemnation sale cash for closing on replacement real estate. The Replacement Property must be only of equal value.
The condemnation sale should be reported on Form 4797, and the gain should be noted as “suspended under §1033.”

Charitable Remainder Trust

A Charitable Remainder Trust (CRT) is a tax-exempt irrevocable trust designed to reduce taxable income by first dispersing income to the beneficiaries of the trust for a specified period of time and then, when that time frame expires, donating the remainder of the trust to a designated charity.
The taxpayer donates assets, such as appreciated stock or land, to an irrevocable trust with two types of designated beneficiaries: non-charitable (typically yourself) and a qualified charity.
You generate an immediate tax deduction based on the difference between the appreciated value of the assets and the present value of the income interest in the trust retained by the non-charitable beneficiary.
Sale of the assets contributed to the Charitable Remainder Trust occurs tax-free.
Once established, it cannot be changed.