Hey, guys, this is Clint Coons here.
And in this video, I'm going to show you how to sell property
and not pay any tax on the sale.
And it's not a 1031 exchange.
Okay, let's get started.
Are you sitting back, going? All right, whoa, whoa.
What is he doing?
How do you sell property and not pay any tax on the sale without engaging
the 1031 exchange or potentially the sale of a personal residence?
Well, there's a there's a strategy out there that's been running around.
They comes under different names.
It's deferred sales trust,
monetized installment sales, what some people refer to it as.
And really what they're doing is
they're using a third party who controls these funds.
They buy the property from you on an installment sale.
So the way it works is this.
There's this entity here.
Okay.
And you have an asset here and you sell this asset
to this entity on an installment sale with interest only payments.
So if I sold this property, let's say this asset has a
I bought it for $1.5 million.
It's now worth 10 million.
Okay, so there's $8.5 million in gain just sitting there.
And if I were to sell it, I would have to pay over,
I don't know, probably close to $2 million in overall taxes on the sale of this.
And I don't want to pay that right now on the sale of that property.
So I enter into the sale with this entity for 10 million on an installment sale
where I sell it to them and they agree to pay me back interest only
say for
for 20 years with a balloon payment, something like that.
So now this is income to me, but the bulk of it is going to the entity
they turn around
and they've already contacted someone who's interested in buying this property.
They sell the property, this person for 10 million, so they have zero gain there.
They take the 10 million into here right on the sale,
the property of this third party, and then they agree to loan you the money.
And so then you start borrowing the money back out of the trust
here or there from this entity back to yourself.
So you borrow 2.5 million this year, 3 million the following year.
So then you take those funds and start using them to create other income.
Now, a lot of people have looked at this and they say, Yeah, I like to
I like the way that that sounds and I'm going to enter into that transaction.
Now, of course, this is going to cost
sometimes it costs money to do it, to create this.
And then the risk factor is, is that when you're doing this type of deal,
what do you know about this company? Right.
You're dependent upon them to make sure you're going to get paid the 10 million.
So there's that risk factor there.
Well, there's another way to do this.
All right.
But it operates on a little different time schedule because this you could set up,
sell it to them tomorrow.
They could turn around, sell 90 days later, 20 days or whatever it is.
And that whole plan can come together.
But there's always that risk that they may not fulfill their end of the obligation.
Then you have to sue them.
And also, there's an argument to that.
I think that this was really a disguised transaction, that your intent
was really to sell to this person over here,
because many times you find this buyer and you put this buyer in contact with
this entity, you reach out to the entity, you say, hey, serve as a middleman.
And they can say, you're just it's just a conduit for you.
But I do think there's some tax risk there.
And I've had people say, well, we've got an opinion
from some obscure case in 1909 that states it's not and,
you know, whatever you want to do.
But there's another way to do it that I think is a little cleaner.
And also keeps you in control
indirectly because it keeps it in the family.
And the way you do it is as follows
Rather than using a third party
guide here, what you could do and this is a longer
term play, by the way, it's not something you go to run out and do tomorrow.
You create a trust.
You got to create a complete X trust.
Okay? So we're going to create a complex trust
for our children, our beneficiaries.
All right. So we we got our kids down here.
We're great up for them.
They're going to be the beneficiaries of this of this trust.
Then I enter into an agreement with the trust
where I'm going to sell this asset.
First, you're going to fund it with some cash
or maybe don't even need it.
Maybe we put in 100 K
in there initially.
But the thing is, is that this is an income producing asset.
So then what we're doing is we're going to sell the asset to this complex trust
for $10 million on an installment sale
interest only
for 20 years.
Okay.
So now we sell it to the trust.
Now the trust is going to start collecting the income from the property.
Its basis in the asset is $10 million.
All right, so we bought it from you.
It's got a basis now, 10 million.
So if you had a basis of 1.5, we just step that basis up to 10 million.
So that income that's coming into the trust for your kids, hey,
that's basically probably going to be a lot of it tax free
because the depreciation schedule kicks back in for them.
So now they're not going to be paying
taxes on that money as it starts coming in because of the depreciation.
That's a whole other side tax angle here.
Now, the kids get the this trust owns the property.
Now, I told you earlier, you go out and you find another party you sell to to
to that individual.
Well, unfortunately, in this scenario, if you want to make sure
there's a little more security around this deal,
you can't turn around and sell the property immediately because the IRS
and the Internal Revenue Code, they look out for stuff like this.
There's a provision that addresses installment sales to related parties.
And what they're trying to
crack down on is they don't want people to artificially inflate
the value of the property, turn around, sell it to another individual,
and then not pay any tax.
So they put a rule in that if you do this type of scenario with a related party,
which this would be, you have to wait two years before you sell.
If you wait two years before you sell, then you can
recognize this treatment
where the basis of this asset is 10 million, not the 1.5 million.
Otherwise, they would carry over the basis of the 1.5 that was in your hands.
So now if I wait two years, I could sell that property, sell it for $10 million.
I have a basis.
Well, it's
going to be because you depreciate it, but let's just say your basis was ten mil,
then your taxable gain here is zero on that sale
and then some you're going back and well client
that property is going to go up in value over two years.
I get it.
So let's say it goes up $500,000.
Well, then your taxable gain is $500,000.
Here's what your taxable gain is, not 8.5 mil.
So now you've got this gain that's inside of here, right?
We got $10 million cash that gains all in there.
We didn't pay any taxes on all that stuff.
Then what happens?
Well, just like we did in the other example, parents or investors were resold.
This asset, I mean, could be investors as well.
You've got kids, you make all your kids beneficiaries.
Whatever it is, you turn around and then you borrow
from this trust.
So you start borrowing the money back out.
So the only thing that you're recognizing on an annual basis, tax wise,
is the interest on that loan
that you made to to the trust in order to buy it from you.
So, I mean, borrowed money, basically an installment sale.
So it's paying you interest.
But the main portion, again, 1.6 million, that's been deferred for 20 years
because it's an installment sale interest only payments.
We don't have to pay taxes on that money for 20 years,
but we're going to have use of it because it's going to loan us the funds
so we can go back out there and reinvest that money.
So if you're thinking about selling
a highly appreciated asset, it's something you might want to consider.
If you've heard about the other topics or the other types of trusts
that are out there or the monetize installment sales.
I get it. I'm not telling you. You should shouldn't do them.
Do your due diligence if you're good to go down that road.
But here's
another strategy allows you to keep it in the family, gives you some more control.
However, you do have to wait the two years before the property can be sold.
In order for this to work out
the way I described it, it, guys, is a little more complex topic here.
I know it doesn't apply to everyone, but here's the thing.
I want it to apply to you.
So you take this, you keep it in the background.
So when you find yourself in that situation
because you realize you can build wealth through real estate,
you'll get there eventually, then you know you have options
and why not take advantage of the tax code to use it to your advantage, right?
Like to video hit the like button.
If you know somebody in this situation, send them out
a link to watch this video to learn how they can dispose of their real estate
on a tax deferred basis.
All right, everyone, take care.