(Newswire.net — February 20, 2015) Millbury, MA — Selling your home or business represents two of the largest monetary transactions most people will be a part of. It also represents their largest capital gains bill they will ever pay as well. Or will it?
“The top rate on capital gains is up to 20 percent; the new “net investment income tax” is 3.8 percent, and state taxes can eat up 13.3 percent more. Depending on where you live, that means the government confiscates up to a third or more of your hard-earned gain,” said Paul Dion, a CPA with offices in Millbury, MA and Newport, RI. “Charitable trusts avoid tax on that gain, but that means giving away the principal or the income from the proceeds. Section 1031 exchanges defer tax on real estate gains, but that forces you to re-invest the proceeds into a ‘like-kind’ property and impose tight deadlines for identifying and closing on a replacement.”
Dion recommends a little-known strategy to cut the effective cost of selling your asset valued at $500,000 or more to as little as 6.5 percent. It’s a monetized installment sale, and it uses a third- party dealer in capital assets to defer receiving sale proceeds (and the tax on those proceeds) for up to 30 years. It’s based on tax code rules dating back to 1913 and supported by a 2012 IRS memorandum.
While deferring tax is great, how does that help you if you want the proceeds from your sale now? With this strategy, a third-party financial institution can lend you a non-taxable amount equal to 95 percent of the sale price (93.5 percent after loan-related costs). You can re-invest those proceeds or spend them however you like.
At the end of the installment period, the dealer will pay you the agreed selling price that will provide you the money to repay the loan, and you’ll pay the tax with significantly discounted dollars.
“The beauty of this strategy is that it offers significant estate-tax advantages,” said Dion.
How? The seller transfers the asset to the dealer in exchange for lump sum payment of the purchase price payable in 30 years. The dealer simultaneously transfers asset to the buyer in exchange for agreed-upon price. Then, the third-party lender extends nontaxable cash equal to 93.5 percent of sale amount to seller. After 30 years, the dealer pays the agreed sale price, the seller uses that money to repay the loan, and the seller pays tax with discounted dollars.
Adds Dion, “While this strategy may seem fairly straightforward, for most if will require the assistance of a tax professional.”
For more information on this strategy, please contact Paul Dion CPA at (508) 853-3292. You can also visit www.pauldioncpa.com.
About Paul Dion CPA
ABOUT PAUL DION, CPA Beyond simple “bean counting”, Paul Dion, CPA and associates work side by side and speak in common English to help clients fully understand their tax situation and take proactive steps to pay the least amount of tax legally allowed while minimizing the risk of an audit. Clients save money and sleep well as night. Business services include small business accounting, payroll, cash flow management, strategic business planning, new business formation, internet controls, QuickBooks, part-time CFO, bank financing, succession planning and non-profit organization direction. For more information or a complimentary consultation, please visit www.PaulDionCPA.com or contact Paul Dion CPA, via Info@PaulDionCPA.com or (508) 853-3292 in Massachusetts; 401-490-3193 in Rhode Island. Offices are conveniently located at 22 West Street, #6, (Felter’s Mill), Millbury, MA 01527 and 580 Thames Street, Newport, Rhode Island.