A 1031 exchange allows a seller of investment property to defer the payment of capital gains at the sale of a property by replacing the property with another “like-kind” investment property. With ever-increasing property values in the Bay Area, the 1031 exchange can be an attractive alternative to a hefty tax bill, allowing you to reinvest your property’s appreciation in a new property, rather than paying a large chunk of it to the government. A downside of a 1031 exchange is that it tends to create a cycle of exchanges to allow for continued deferral of capital gains as a result of the gains taxes becoming due on an outright sale. A possible alternative for investors, however, is to invest in a charitable remainder trust. A charitable remainder trust is an irrevocable trust that will pay you an income over your lifetime and distribute the remaining funds to a charity of your choice at your death. Utilizing a 1031 exchange property to fund a charitable remainder trust will allow the settlor of the trust to continue to defer capital gains, as no tax will be due on the sale of the property by the trust, due to the fact that it qualifies as a charitable entity. Rather, the Settlor will receive an income for life and a charitable deduction in the amount of the anticipated charitable remainder.
If you are interested in learning more about how a charitable remainder trust may benefit you, please contact us today or call 650-573-9500.
This material in this article, provided by Chauvel & Glatt, is designed to provide informative and current information as of the date of the post. It should not be considered, nor is it intended to constitute legal advice. For information on your particular circumstances, please contact Chauvel & Glatt at 650-881-2476 for legal assistance near you. (photo credit: Depositphotos.com)