Investment Updates
One Way To Reduce The Tax On Real Estate Gains
Published Wednesday, July 1, 2009 at: 7:00 AM EDT
Despite the real estate meltdown, you may own a piece of prime investment property that is still worth considerably more than when you acquired it, and if you sell it now, you may realize a sizeable profit. You could use the money to purchase other real estate, or you might reinvest the proceeds in stock market bargains. But your profit will be reduced by capital gains taxes.
One good way to ease that tax burden is to arrange an “installment sale” of the property. That way, rather than getting a lump-sum payment from the buyer, you agree to receive a series of installment payments, typically spanning a period of several years.
One benefit of an installment sale is that it may help you find a buyer. Being willing to strike this sort of deal when credit is tight helps potential buyers avoid taking a loan through conventional channels. But the larger advantage to you is in tax savings. Because you aren’t taxed on payments until they are received, you can spread out the resulting tax liability over the length of the agreement. Delaying some of the taxable gains could also help you avoid being bumped into a higher tax bracket.
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