1031 "Treadmill"
It seems to me that a 1031 is nothing more than a "treadmill" and that someday you need to get off and pay "Uncle Sam".
I have looked at various options to eliminate, or greatly reduce taxes and I came across a site that allows you to set up a "Private Charity Foundation" and legitimately not have to pay Capital Gains taxes or 1031 taxes.
This doesn't seem like some "off-shore" investment scam or tax shelter, but a legitimate, private charitable foundation in which most, if not all taxes are exempt. This can be used to support charity work, missions work, etc. and is totally in compliance with all IRS tax exempt laws, rules and regulations.
Has anyone else looked into this type of program? I have checked with a tax attorney and he can't find anything wrong with it, so I am thinking about setting one up. I'm tired of rushing around trying to find property to fit the 1031 program and having to make quick decisions.
http://www.asset-protection-pros.com/no_more_1031.html
I would appreciate any feedback on this type of program.
Thanks,
Dave
I want to comment on your "tread mill" statement. If I can make the choice of making a payment (capital gain) now or postpone it for 10 years my choice is to wait since I have use of the money for the next 10 years and can make more money with it.
Thanks for your comments, but at some point someone, either me or my heirs are going to get stuck with the taxes. It's like the old saying "You can pay me now, or you can pay me later" Either way someone is going to pay.
I guess I would rather set up a charitable foundation and then buy properties in the charity and never have to pay taxes on that money or gains.
Dave
Quote:
On 2004-12-07 23:26, droekle wrote:
Thanks for your comments, but at some point someone, either me or my heirs are going to get stuck with the taxes. It's like the old saying "You can pay me now, or you can pay me later" Either way someone is going to pay.
This is not completely true. If you should die and leave the propertes received through 1031 exchanges they will inherit them at the stepped up basis of the FMV of the properties at the time of your death. So, if you left the properties to your heirs you would actually eliminate the tax burden.
Also, have you considered moving into one of your investment properties? If you live in it and change its use over to that of a primary residence, then the property would fall under the primary residence 250-500K exclusion, again eliminating the tax burden.
Just some food for thought.
So, you put your properties into a charitable foundation. What's the benefit to you?
Dave,
Your heirs may not have to pay the capital gains since under current law, the basis of properties becomes fair market value so if the properties were sold immediately after inheritance there would be no capital gains.
You might want to get familiar with the "time value of money". The promise to pay $100,000 tomorrow is worth $100,000 today. The promise to pay $100,000 in 10 years is worth significantly less in today's market. A person looking for a modest 4% return would only pay $67,556.42 today for the $100,000 note.
Therefore, it can be very advantageous to pospone capital gains payment so you can use the money for additional investing today.
I'll take them !! well call it the give it and *getgoing* fund...
Charitable Remainder Trusts, Private Charitable Foundations, etc. can be good vehicles provided that it makes sense for you and accomplishes what you want to do. The most important thing to remember is that they are PERMANENT and you can not change your mind later. The 1031 Exchange allows you to continually defer your capital gains (swap until you drop) so that your money continues to work for you. The time value of money post is right on the money. The deferral of taxes allows your money to grow and building much faster and you do not lose control of your assets. Also, you should always consult with an estate planning attorney so that the 1031 exchange is only part of your over all estate plan. A well planned estate can avoid all estate taxes, all capital gain taxes, and all gift taxes, etc. It just takes careful planning.
[addsig]
Don't these taxes come due only when you sell? If that's true don't sell. I don't need a lump sum, only the cash flow it provides.
charitble trusts are good only if you were going to give the money to charity to begin with. even then they're not a good idea. suppose to give 20k to a charity in the form of CRT. after five years the value is worth 100k. you could've kept the property until it was worth 100k and then given it to the charity. (atleast thats what i heard from a radio financial planner).
just my 2 cents.
Just curious. Has anyone thought of forming a tax exempt structure and then making your real estate investments within this tax exempt structure? It would not be necessary to look to 1031 exchanges as the environment is tax exempt and does not need a tax exempt transaction like a 1031 exchange. You could even flip property in less than one year and there would be no taxes - the entity making the investment simply does not pay taxes. It is "tax exempt".
selfdirect roth ira. just make sure following all the rules of ira and plan carefully with the fund in the ira. some of the selfdirect ira sites have a lot of information.
But what about asset protection? A self directed IRA does not give you any asset protection at all and the restrictions are mind blowing. Perhaps the private tax exempt charitable corporation is the much better way to go. It is completely tax exempt for virtually all real estate transactions, has no restrictions or limitations, provides a high level of asset protection, is not grossed back into your estate for estate tax purposes, provides a charitable contribution deduction for making contributions of cash. What is there not to like?
I took a lok at the powerpoint and see 10% payments to a company, and still a Charitable trust HAS to leave money to some Charity when you die.
I am investigating the same issue and understand that 100% can be put in the Charitable Trust. Initial benefit is major Tax Credit that can be used over 6 years. Income can be taken out each year and also a Term Life insurance policy purchased and funded by the Trust, so upon death, your heirs get proceeds from the Insurance to more than make up for original investment donated to Charity.
Frankly, I still think this is too good to be true and am investigating futher, and this is when I can across your comments.
Cheers,