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Tax-Saving Strategies for Appreciated Assets: Maximizing Value & Minimizing Losses

Learn how Ray and Reba can optimize a $1M asset sale by exploring tax-efficient options using trusts to preserve wealth for heirs and donate to charity.

joanparker
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Tax-Saving Strategies for Appreciated Assets: Maximizing Value & Minimizing Losses

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  1. Dilemma: How to get maximum value from a highly appreciated asset - i.e. NOT LOSE A LOT TO TAXES!

  2. Ray & Reba Rancher’s Beach house & 20 acres • Worth $1,000,000 • Cost Basis of $100,000

  3. Scenario #1 • Sell property (Cash Sale) • Pay Capital Gains Tax (15% Federal, 9% State) • Invest net proceeds ($784,000) at 5% • Receive $39,200 annual income from investment for 25 years ($980,000 total) • At Ray & Reba’s death, children inherit remaining funds - after paying estate tax (45%) - $431,200

  4. Ray & Reba Rancher $216,000 - Capital Gains Tax $352,800 – Estate Tax $1,000,000 Cash sale of property $980,000 Income for 25 Years $784,000 invested at 5% $431,200 net to heirs at Ray and Reba’s death (after estate taxes) Heirs

  5. Scenario #2 • Donate property to a Charitable Remainder Trust • CRT sells property with no Capital Gains Tax • Invest net proceeds ($1,000,000) at 5% • Trust pays $50,000 annual income to Ray & Reba for 25 years ($1,250,000 total) • At Ray & Reba’s death, charity receives assets remaining in trust ($1,000,000)

  6. $0 Capital Gains Tax Ray & Reba Rancher $0 Estate Tax Donation of Property to CRT $356,940 Income Tax Deduction Charitable Remainder Trust -$85,666 Income Tax Sale of property within CRT (NO CAP GAINS TAX) $1,250,000 Income for 25 Years CRT: $1,000,000 invested at 5% $1,000,000 to Charity upon Ray & Reba’s death Charity

  7. Scenario #3 • Donate property to a Charitable Remainder Trust • CRT sells property with no Capital Gains Tax • Invest net proceeds ($1,000,000) at 5% • Trust pays $50,000 annual income to Ray & Reba for 25 years ($1,250,000) • Use portion of that income to fund a Wealth Replacement Trust, with heirs as beneficiaries – net annual income = $40,700 ($1,017,500 total) • At Ray & Reba’s death, charity receives assets in the Charitable Remainder Trust & heirs receive assets in the Wealth Replacement Trust

  8. Donation of Property to CRT $356,940 Income Tax Deduction Ray & Reba Rancher Charitable Remainder Trust Sale of property within CRT (NO CAP GAINS TAX) $1,250,000 Income for 25 Years CRT: $1,000,000 invested at 5% $0 Capital Gains Tax Ray & Reba fund a Wealth Replacement Trust with a portion of their CRT-derived income ($9,300) $0 Estate Tax -$85,666 Income Tax Wealth Replacement Trust Ray & Reba’s heirs receive $784,000 as beneficiaries. Charity $1,000,000 to Charity upon Ray & Reba’s death Heirs

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