Selling an asset that has appreciated considerably can be a bittersweet event. Usually much time is devoted to purchasing the asset at a low price and making a profit by selling it for a higher amount. However, how much of that profit is kept by the asset seller can be affected by capital gain’s tax treatment.
In the United States, a capital gains tax is a charged on the profit realized from the sale of a non-inventory asset that was purchased at a lower price. Some of the more common assets associated with capital gains are bonds, stocks, real estate or life insurance when sold in a life settlement.
A new strategy to reduce the tax liability of a capital gain is the Charitable Installment Bargain Sale. As an asset becomes more highly appreciated the strategy becomes more attractive. It has the ability of changing a sale of an asset from a taxable event into a tax deduction.
A Charitable Installment Bargain Sale is based upon an asset owner selling their asset to a recognized charity at a discount. An appraisal must be made to establish the asset’s market value. The difference between the appraised market value and the discounted sales price constitutes a charitable donation. As a result, the asset seller receives a tax deduction for that amount. The seller is then paid in installments by the charity for a mutually agreed upon time.
The charity then either sells the asset or holds it for appreciation. However, the charity typically purchases an annuity that guarantees the asset seller’s installment payments for the duration of the payment term. The charity of course benefits by collecting the asset at a discounted price from its actual market value.
Charitable Installment Bargain Sales are being used successfully with a number of different assets. Specifically the strategy is gaining popularity in the life settlement industry. In addition, it is has been used when real estate sellers want an exit from 1031 exchanges without incurring hefty tax bills.
Not every asset sale is right for a Charitable Installment Bargain Sale. Although it is prudent to evaluate all tax strategies as a consideration when planning to sell any asset. Charitable Installment Bargain Sales are a new but increasingly popular strategy to preserve more of the profits from an asset’s sale.
Looking to find the most value in a life settlement, then visit www.amritafinancial.com to find the best information on life settlement taxation for you.
Tags: finance, investing, personal finance, tax strategies, taxes, wealth building