When selling your residential property, investment property or a business, you may have to pay Capital Tax on the gain. However, by following our proposed strategy,
You could eliminate up to 99% of the capital gains tax bill.
This tax strategy helps clients like Benjamin to reduce capital gains tax through strategic charitable partnerships. Benjamin, who purchased a property and sold it for $4 million (gaining $ 2 million), faced a $742,000 tax bill (at 37.1%). The strategy involves transferring the property to a single-member LLC, donating 99% of the non-voting shares to a charity, and retaining 1% of the voting shares. This approach offers a $ 3 million charitable deduction, reducing Benjamin’s tax bill to $7,420, and increasing his net proceeds to $3,992,580. The strategy also includes using a Beneficiary Defective Inheritors Trust (BDIT) and life insurance to further mitigate taxes and protect assets.
For further information, please schedule a meeting by contacting: Sal Abey at 941-284-6355.
Example:
- Benjamin, who aims to own his home free and clear by the time he retires.
- Benjamin sold a California multi-family property for $4 million, incurring a $2 million capital gains tax bill.
- Benjamin transfers the property to a single-member LLC and opens a bank account for the LLC.
- The LLC enters into a contract with the buyer, and the charity Benjamin chooses signs a gift acknowledgment letter.
- Benjamin donates 99% of the non-voting shares to the charity, maintaining control as a manager with 1% voting share.
- The charity is a limited partner that owns 99% of the LLC and is exempt from paying taxes.
Financial Benefits Of This Strategy
Benjamin’s asset is worth $4 million, with non-voting shares discounted 25%, resulting in a $1 million discount.
- Original Purchase price: $ 2 Million.
- Selling price: $ 4 Million.
- Capital Gains: $ 2 Million.
- Capital Gains tax @ 37.1% = $ 742,000.00
- Savings 99%: $ 734,500.00