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A Capital Gains Tax Deferral Solution

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DTS: A Capital Gains Tax Deferral Solution

REQUEST DTS ANALYSIS

Taxes can be a big hurdle for someone who wants to sell a highly appreciated asset like a small business or real estate. But what if we told you we have a strategy that could allow you to potentially defer all the taxes on capital gains so we can keep what you would have paid to Uncle Sam and have it continue to work for you. So, if you’re looking for a way out, but are reluctant due to the fear of taxes eating up a large portion of your life’s work, a deferred tax strategy positions the proceeds of the sale so that your money continues to work as hard for you as you did for it. 

A DEFERRED TAX STRATEGY EXPLAINED:

HOW A DTS
WORKS

MORE INFO

DO CAPITAL GAINS PREVENT SELLING?

MORE INFO

DTS
PROCESS

MORE INFO

MANAGING DISTRIBUTION

MORE INFO

CAPITAL GAINS TAXES

MORE INFO

BENEFITS OF USING A DTS

MORE INFO

REQUEST DTS ANALYSIS

SIMPLE & STRESS-FREE

STEP 1

Request our Analysis of your real property, business, or other highly appreciated asset.

STEP 2

A call will be scheduled to discuss how you may benefit from using a deferred tax strategy.

STEP 3

A conditional engagement agreement is provided to you. There is no upfront cost or obligation.

STEP 4

Documentation is prepped and a DTS is implemented at close of sale, through escrow or attorney.

REQUEST MY DTS ANALYSIS

Taking a look at a few hypothetical tax-saving scenarios...

NEW YORK CITY

LOS ANGELES

CHICAGO

NEW YORK CITY

CASE STUDY: COMMERCIAL PROPERTY SALE

Sales proceeds after commissions & closing costs: $20,000,000
Seller's Original Basis: $5,000,000
Capital Improvements: $1,000,000
Depreciation: $4,000,000
 Mortgage Balance at time of closing: $2,000,000
Seller's adjusted basis [purchase price + capital improvements - depreciation]: $2,000,000
Taxable gain [net sales proceeds minus adjusted basis]: $18,000,000
Federal Tax [unrecaptured section 1250 gain applies]: 20-25%
NY State & City Tax: 12.7%
Medicare Tax: 3.8%%
Approximate Tax Due: $6,770,000

Approximate Tax Due with Deferred Tax Strategy: $0

LOS ANGELES

CASE STUDY: COMMERCIAL PROPERTY SALE

Sales proceeds after commissions & closing costs: $4,000,000
Seller's original basis: $400,000
Mortgage balance at time of closing: $300,000
IRC sec.121 exclusion [$250,000 per owner residing there for two of the last five years]: $500,000
Seller's adjusted basis [purchase price + section 121 exclusion]: $900,000
Taxable gain [net sales proceeds minus adjusted base]: $3,100,000
Federal Tax: 20%
CA State & City Tax: 13.3%
Medicare Tax: 3.8%
Approximate Tax Due: $1,500,100

Approximate Tax Due with Deferred Tax Strategy: $0

CHICAGO

CASE STUDY: COMMERCIAL PROPERTY SALE

Sales proceeds after commissions & closing costs: $10,000,000
Seller's original basis: $0
Business loan balance at time of closing: $250,000
Taxable gain [net sales proceeds minus adjusted base]: $10,000,000
Federal Tax: 20%
IL State Tax: 4.95%
Medicare Tax [does not apply to this situation]: 3.8%
Approximate Tax Due: $2,495,00

Approximate Tax Due with Deferred Tax Strategy: $62,375

DOWNLOAD YOUR DTS GUIDE

Unlock the secret to optimizing your financial future with our exclusive Deferred Tax Strategy guide. In just a few pages, you’ll learn how to strategically minimize your tax liabilities, freeing up more of your hard-earned money for the things that matter most to you.

FAQ'S

The payments are based on what you, the seller/taxpayer, arrange and pre-negotiate with our DTS trained and approved trustee. Depending on your income goals and other objectives, the amount and length of term of the installment sales note are your choice and subject to your approval.

With proper estate planning [i.e., by creating a Living Trust] scheduled installment note payments otherwise due to you can continue to pay to your legal heirs pursuant to the note term that you have chosen.

Yes. The DTS Trustee, in his or her absolute discretion, may allow you to renegotiate the terms of your installment note.

If the DTS Trustee deems appropriate, he/she may elect to terminate the installment sales contract. However, you would immediately owe all the taxes, including all unpaid capital gains due from the original sale of the property/capital asset.

Politicians, from time to time, discuss changing capital gains rates. If that happens, you would pay the new rate on the capital gains portion of your installment note payments as they are received. However, there is usually adequate notice to make a sound financial decision prior to any such change in taxation or tax rates.

Yes, please contact MATTHEW JAMES Tax Pros or a duly qualified DTS attorney to discuss this option.

Yes. In that case, you would pay taxes only on the capital gain portion of the money which you kept for yourself outside the trust.

For detailed technical information, have your CPA contact MATTHEW JAMES Tax Pros to discuss your scenario with an attorney with DTS experience. The names Deferred Tax Strategy and DTS were created to describe a technique and are not specifically found in the code. All of the legal and tax authority used in the DTS are in the tax code, treasury regulations, cases, or rulings based upon the foundations found within the tax law.

It’s very easy. Your next step is to fill out a simple DTS Analysis request on my website. Once you have received the illustration summary, you can then review this information with a trust case manager and share this information with your CPA or tax attorney for further review.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication [including any attachments] is not intended or written to be used, and cannot be used, for the purpose of [i] avoiding penalties under the Internal RevenueCode or [ii] promoting, marketing or recommending to another party any transaction or matter addressed herein.

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The publication of this webpage and brochure is designed for informational purposes only in regard to the subject matter covered. The material on this webpage, and within the brochure, does not constitute an offer to sell or a solicitation of an offer to buy any security. Any such offer may only be made based on review of each qualifying client’s individual financial situation, upon request.

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DISCLOSURE

© 2024 MATTHEW JAMES TAX LLC.
ALL RIGHTS RESERVED.

1011 COOLIDGE BLVD, LAFAYETTE, LA 70503

337-895-0829

Information provided is intended for general guidance and may not be applicable to every individual or situation. Results may vary based on specific circumstances.

PRIVACY POLICY
DISCLOSURE

matthewjamestaxpros.com

1011 COOLIDGE BLVD
LAFAYETTE, LA 70503

888-905-6587
matthewjamestaxpros.com

© 2024 MATTHEW JAMES TAX LLC.
ALL RIGHTS RESERVED.

Information provided is intended for general guidance and may not be applicable to every individual or situation. Results may vary based on specific circumstances.

PRIVACY POLICY
DISCLOSURE

HOW DTS WORKS

Our Deferred Tax Strategy [“DTS”] is a type of IRC Section 453 installment sale, also known as a “seller carry-back” sale. Under this code section, the seller may achieve significant tax-deferral benefits by not receiving actual or constructive receipt of the proceeds at the time of the sale, instead receiving payments made to them over time. Moreover, the DTS has greater flexibility than a conventional installment sale with respect to risk management, the repayment timeframe, and the trust’s investment selection.

The process starts with initial due diligence and prospective marketing and market research. If the transaction is viable, the trust and property owner will negotiate to reach terms for the asset[s]. If the transaction is feasible, the property owner, [“seller/taxpayer”], sells ownership of the property/capital asset to a dedicated trust [the“trust”].

Next, the approved and DTS trained trustee of the trust pays the seller/taxpayer for the property/capital asset. The payment isn’t in cash, but with a payment contract called an “installment sales contract” which is a private agreement between the trust and the seller/taxpayer. The terms of payment are established in advance and pursuant to the sale contract negotiated by and between the seller/taxpayer and the trustee.

The payments may begin immediately, or they may be deferred for some period of months or years. The trust then sells the property. There are generally minimal capital gains taxes due from the trust on the sale, since the trust often purchases the property for a price and value similar to what it may get sold to a third-party Buyer.

The seller/taxpayer is not taxed on the sale since he or she has not yet received any cash for the sale. Payments may begin immediately but oftentimes a seller/taxpayers will choose deferral because they have other income and don’t need the payments right away.

Deferral is strictly an option. It is important to understand that payment of the capital gains tax to the IRS is done with an “easy installment plan” as the seller/taxpayer receives the payments. Part of the payment received is tax-free return of basis, part is return of gain which is taxed at capital gains rates, and part is interest.

On top of that, the tax payments will be made with depreciated dollars. The tax dollars will likely be worth less than they are today due to inflation. If invested properly, the money in the trust could potentially grow at a greater rate than that of inflation and even the distribution rate, and ensures the necessary liquidity to pay back the note due to the seller/taxpayer. The interest rate in the note to you is dictated by the IRS to be a fair and arms length or a competitive rate, i.e., 6% to 8%.

While we have primarily focused on capital gains tax, the amount of gain due to straight line depreciation is also deferred with our DTS. However, if you have taken accelerated depreciation in excess over straight line, this amount is not deferrable.

There is proper diversification by the DTS Trustee when investing the DTS’s funds. The DTS Trustee may invest in REIT’s, bonds, annuities, securities or other “prudent investments” that are suitable to help assure the trustee’s performance in repaying the seller/taxpayer pursuant to the held installment sales note. The DTS Trustee’s reinvestment of the proceeds may result in more or less risk depending on the nature of where the proceeds are reinvested. An inherent goal of the trust’s investment objective is simply to produce the cash flow necessary for the scheduled installment sales note payments to the seller/taxpayer.

CAPITAL GAINS & SELLING

Those of us who own highly appreciated assets such as homes, commercial real estate, and businesses are often reluctant to sell those assets due to the capital gains tax and depreciation recapture costs associated with the sale. With our Deferred Tax Strategy [“DTS”], the Matthew James team presents a solution that allows a seller to defer their capital gains tax and potentially reduce the overall tax burden.

Additionally, many people do not realize the high costs associated with estate tax and with having to wait for “step-up” values. The DTS offers a smart, functional, and legal way to address these issues.

Our DTS utilizes IRS tax code that allows the seller of the property to defer capital gains taxes due at the time of sale over a period of time that is selected by the Seller/Taxpayer in advance. It may be a fit for owners of businesses or real estate that has significantly appreciated, or for those who are having trouble finding suitable, qualified property exchanges.

Deferring taxes legally is not new. Some commonly used tax deferral methods include 1031 exchanges, charitable trusts, and traditional seller carry-back installment sale contracts. Trust law predates the formation of the U.S. law and tax law. Various types of trusts are used by millions of Americans to protect and preserve their wealth for themselves and their heirs.

The DTS can be used with any kind of entity, e.g., LLCs, S or C-election corporations, as well as individuals who own real estate, rental properties, vacation homes, farm or commercial properties, hotels, vacant land, industrial complexes, retail developments, and raw land, to name a few.

DTS PROCESS

The process starts with a detailed consultation with a specialized attorney who will gather appropriate details of the transaction to determine if it is suitable for structuring as a Deferred Tax Strategy [“DTS”], as well as what the potential benefits would be to the taxpayer.

Then, if the transaction meets the requirements for a DTS, and sufficient benefits can be obtained for the taxpayer, a conditional engagement agreement is offered to the taxpayer by the law firm. This engagement requires no upfront retainer and does not obligate the taxpayer to pay for any services unless, and until, the closing of the sale of the appreciated asset and a decision by the taxpayer to proceed with the funding of the trust.

MANAGING DISTRIBUTIONS

1.  Flexible Payment Options: 

The repayment terms and schedule can be structured in a variety of ways to best serve he needs of each specific taxpayer. This includes anything from minimal repayment of principal or rapid amortization. In addition, the commencement of payments can be immediate or can be delayed into the future.

2.  Liquidity & Diversification:

Can potentially convert an illiquid asset, like a business or commercial real estate, into a diversified portfolio of liquid investments. This can help reduce risk and volatility by preventing overexposure to a single asset class.

3.  Enhanced Retirement Income:

Can provide a stream of income for retirement based on the pre-tax proceeds from the sale instead of the after-tax proceeds, which are likely to be substantially less.

4.  Maintains Family Wealth:

Helps to maintain wealth within the family in a number of ways. First, by avoiding a massive drain of equity at the time of the sale, resulting from the immediate recognition of the full capital gains tax liability at the highest rates. Second, by potentially providing significant estate planning benefits. And finally, our Deferred Tax Strategy [“DTS”] can provide estate liquidity so that significant assets of the family do not have to be liquidated under less- than-ideal circumstances.

5.  Estate Tax Benefits:

The DTS can be combined with additional planning to accomplish an estate freeze for estate tax purposes, and to potentially remove the proceeds of the sale from the seller’s taxable estate beyond the amounts exempted by the unified credit. Further, the ability to select the state in which to domicile the trust can provide additional tax savings.

6.  A 1031 Exchange Alternative:

Unlike a 1031 Exchange, the proceeds from the sale do not have to be invested in “like-kind” property in a very short timeframe to achieve tax deferral.

7.  Can Sever Partnership Interests:

When a partnership or other ownership group sells an appreciated asset, they do not need to remain together to achieve tax deferral, as is typically the case with a 1031 Exchange. Each individual owner can have their own DTS, the assets of which can be managed to each taxpayer’s own individual risk tolerance and preferences.

8.  Asset Protection:

Subject to State specific laws, and in conjunction with additional planning, the taxpayer can potentially secure asset protection by utilizing our DTS.

9.  Probate Avoidance:

With additional planning, our DTS can help avoid the delays and expense of probate.

CAPITAL GAINS TAXES

Those of us who own highly appreciated assets such as homes, commercial real estate, and businesses are often reluctant to sell those assets due to the capital gains tax and depreciation recapture costs associated with the sale. With our Deferred Tax Strategy [“DTS”], the Matthew James team presents a solution that allows a seller to defer their capital gains tax and potentially reduce the overall tax burden.

Additionally, many people do not realize the high costs associated with estate tax and with having to wait for “step-up” values. The DTS offers a smart, functional, and legal way to address these issues.

Our DTS utilizes IRS tax code that allows the seller of the property to defer capital gains taxes due at the time of sale over a period of time that is selected by the Seller/Taxpayer in advance. It may be a fit for owners of businesses or real estate that has significantly appreciated, or for those who are having trouble finding suitable, qualified property exchanges.

Deferring taxes legally is not new. Some commonly used tax deferral methods include 1031 exchanges, charitable trusts, and traditional seller carry-back installment sale contracts. Trust law predates the formation of the U.S. law and tax law. Various types of trusts are used by millions of Americans to protect and preserve their wealth for themselves and their heirs.

The DTS can be used with any kind of entity, e.g., LLCs, S or C-election corporations, as well as individuals who own real estate, rental properties, vacation homes, farm or commercial properties, hotels, vacant land, industrial complexes, retail developments, and raw land, to name a few.

DTS BENEFITS

1.  Flexible Payment Options: 
The repayment terms and schedule can be structured in a variety of ways to best serve the needs of each specific taxpayer. This includes anything from minimal repayment of principal or rapid amortization. In addition, the commencement of payments can be immediate or can be delayed into the future.

2.  Estate Tax Benefits:
The DTS can be combined with additional planning to accomplish an estate freeze for estate tax purposes, and to potentially remove the proceeds of the sale from the seller’s taxable estate beyond the amounts exempted by the unified credit. Further, the ability to select the state in which to domicile the trust can provide additional tax savings.

3.  Maintains Family Wealth:
Helps to maintain wealth within the family in a number of ways. First, by avoiding a massive drain of equity at the time of the sale, resulting from the immediate recognition of the full capital gains tax liability at the highest rates. Second, by potentially providing significant estate planning benefits. And finally, the DTS can provide estate liquidity so that significant assets of the family do not have to be liquidated under less- than-ideal circumstances.

4.  Liquidity & Diversification:
Can potentially convert an illiquid asset, like a business or commercial real estate, into a diversified portfolio of liquid investments.This can help reduce risk and volatility by preventing overexposure to a single asset class.

5.  Enhanced Retirement Income:
Can provide a stream of income for retirement based on the pre-tax proceeds from the sale instead of the after-tax proceeds, which are likely to be substantially less.

6.  Probate Avoidance:
With additional planning, the DTS can help avoid the delays and expense of probate.

7.  1031 Exchange Alternative:
Unlike a 1031 Exchange, the proceeds from the sale do not have to be invested in “like-kind”property in a very short timeframe to achieve tax deferral.

8.  Asset Protection:
Subject to State specific laws, and in conjunction with additional planning, the taxpayer can potentially secure asset protection by utilizing the DTS.

9.  Can Sever Partnership Interests:
When a partnership or other ownership group sells an appreciated asset, they do not need to remain together to achieve tax deferral, as is typically the case with a 1031 Exchange. Each individual owner can have their own DeferredSales Trust, the assets of which can be managed to each taxpayer’s own individual risk tolerance and preferences.

Tax Deferral: When appreciated assets are sold, tax on the gain is deferred until the seller receives payments of the principal. Opting to receive future payments in lieu of an immediate lump sum delays the recognition of capital gains, thereby enabling the taxpayer to enjoy the benefit of the pretax proceeds for an extended period. Managing the amount and frequency of principal distributions can also enable the seller to benefit from lower marginal tax rates for the years in which the gains are recognized. The DTS can defer capital gains taxes on the sale of almost any type of highly appreciated asset including businesses & professional practices, commercial real estate, investment properties, high end primary residences, major stock positions, and very valuable artwork and collectibles, among other things.

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