Did you know Capital Gains Tax is the biggest enemy to Building Wealth?

Would it be helpful to understand how much capital gain tax you will pay if you sell?

In Hawaii, it’s common to have homes that have grown hundreds of thousands or even millions of dollars. However, capital gains taxes potentially reaching 30% can lead to paying tens or even hundreds of thousands in capital gains taxes. We believe in helping you protect the wealth you have built. We do this by creating plans and utilizing strategies to defer or even eliminate capital gains taxes.

Learn Your Capital Gains Tax Liability

Five Instruments for Appreciated Real Estate

While these instruments are useful, we advise adopting a strategic approach tailored to your specific needs for optimal utilization. You’re not confined to using just one; it’s feasible to apply multiple instruments concurrently to enhance your strategy.

1.   Sell Real Estate

Pro: Liquid Cash

Con: Capital Gain Tax

2.   Hold for Step Up in Cost basis

Pro: If you hold onto a property until death, your heirs can receive a “step up” in cost basis to the market value at the time of inheritance. 

Cons:

  • Can limit flexibility in tax planning
  • Requires ongoing management /dealing with property manager
  • Liquidity Risk: Wealth is tied up in the property
  • Can complicate estate planning, especially if there are multiple heirs.

3.   1031 Exchange

Pro: Allows you to defer capital gains tax

Cons: 

  • Have to reinvest proceeds from sale
  • Only for Investment properties

4.   Delaware Statutory Trust (DST)

Pros:

  • Allows you to defer capital gains taxes by 1031 Exchange into DST
  • No management responsibilities
  • Easily divisible when DST matures

Cons: 

  • Lack of control over property decision’s
  • Have to be an accredited investor
  • Delaware Statutory Trust’s have approximately 3-8 year maturity time. Makes it difficult to exit before maturity time.

5.   721 Exchange (DST to REIT)

Pros:

  • No management responsibilities
  • Easily divisible when liquidating
  • Don’t have to continuously 1031 Exchange after DST matures
  • Allows you to pull money from REIT at cost basis first with no capital gains tax

Cons:

  • Can not 1031 Exchange back into real estate
  • Likely will have to buy DST
  • May be challenging with existing debt

We recommend developing a comprehensive real estate plan that may incorporate multiple instruments simultaneously to best meet your needs. Before we can tailor a plan for you, it’s crucial for us to understand your specific situation, long-term objectives, and the legacy you wish to create. 

Create Real Estate Plan to Protect Real Estate Wealth

Primary Residence Tax Exemption

If you sell your primary residence (home you live in) Section 121 gives you a significant tax exemption. This allows single sellers to exempt up to $250,000 of capital gains from taxes, and married couples filing jointly can exempt up to $500,000. To qualify for this you must have owned and lived in the property for at least two of the last five years before sale. 

We are not CPA’s | Always consult with your accountant.

Protect Your Family From Probate

Is your properties in a Trust?

If not, your family might face the probate process after your passing. Probate can be a complex and burdensome procedure that many prefer to avoid.

Probate can be 

  • Costly:

Probate can be expensive with cost such as court fees, legal fees, executor fees, and other associated expenses. 

  • Time consuming:

The process can be lengthy, often taking several months to several years to complete, depending on the complexity of the estate. This delay can be frustrating for beneficiaries awaiting their inheritance.

  • Public Record:

Probate is a public process. As a result, any documents filed, including the will and details about the assets, debts, and beneficiaries of the estate, become part of the public record. This lack of privacy can be concerning for many families.

  • Stressful:

The probate process can be complicated and stressful often requiring assistance of an attorney. Navigating court procedures, tax issues, and legal paperwork can be challenging for executors and beneficiaries.

  • Potential for Disputes:

Since probate is a formal legal process, it provides a clear opportunity for disputes to arise amount potential heirs or between heirs and the executor. This can lead to family conflicts and may result in litigation, further draining estate resources.

 

The Solution

Creating a trust  and transferring your properties into the trust is a straightforward way to avoid probate. If you would like recommendations for skilled trust attorneys, reach out so we can connect.

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