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How To Regain Control Of Your Real Estate Investment Choices While Avoiding Capital Gains

Aug 17, 2007
The past several years have been very profitable for many real estate investors. But the market is changing and it may be time for many investors to be on the lookout for a new 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're thinking about selling your investment properties now, you probably are concerned about the large tax bill you'll face.

Low net rent income, demanding tenants, and a large amount of equity at risk have caused almost all real estate owners 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. Many are hesitant to reinvest in a new 1031 exchange property because of low rental rates, but are unwilling to cash out on the property out of fear of paying hefty capital gains taxes. The good news is that for many owners and investors, the Private Annuity Trust offers a way to defer paying capital gains taxes, create a lifetime income and protect your assets as well.

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's no pressure to reinvest right away to avoid paying capital gains. Instead investors can avoid making hasty decisions, feel out the market, and decide whether or not they even want to stay in real estate.

How the Private Annuity Trust defers capital gains taxes
Before the sale of the property is final, the property is transferred into the Private Annuity Trust. When the property is ultimately sold, the Trust can begin providing a lifetime stream of income, with taxes deferred over the seller's lifetime. The Trust assets are protected from creditors and lawsuits, and the assets in the Trust can eventually pass to the seller's beneficiaries without worry about the current 46% estate tax rate.

Many investors are concerned that due to significant property appreciation over the last several years, they are now too heavily invested in real estate. 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. At the same time, they don't want to fork over up to 30% of their investment profits in the form of capital gains tax payments if they don't find a suitable investment in time.

The current Internal Revenue codes and strategic implementation of Private Annuity Trusts make avoiding this predicament a reality. Payments from the trust don't need to begin right away-not until age 70 . If no money is paid from the trust, taxes are further deferred until the payments actually are received. 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. Perhaps its time to take back the control you deserve over your real estate investment career and begin investing on your own terms. If you're ready to take back the reins on your investment vision, talk to a professional today to explore how Private Annuity Trusts may benefit your particular situation.
About the Author
Author is a writer for QA Plan who specialize in PrivateAnnuity Trust strategies . For more information you can visit http://www.QAPlan.com.
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