Sell Your Property, Keep Your Money: How a Deferred Sales Trust Can Protect You From the Taxman When Selling Your Property

December 12, 2017

Selling property at a high enough value to incur capital gains tax makes some reluctant to begin the whole undertaking. This article explores one solution, the Deferred Sales Trust, as a method of keeping your money when making a high-value sale.


Trying to sell an asset that’s highly appreciated is a challenging venture, even when guided by experienced, competent professionals. If you’re trying to sell something like a high-value home, a piece of commercial real estate, or a business, chances you’re going to lose a hefty portion of the sale’s proceeds to capital gains tax. Upon learning the amount that capital gains taxes can take, some even ditch the idea of the sale altogether.


However, there is an option available to you that can help you to deal with the resulting capital gains tax from the sale of your property. That option is a Deferred Sales Trust, and it is a flexible, sensible option when selling your property that will allow you to defer capital gains tax and other taxation following your sale.


Here’s how a Deferred Sales Trust Works:


A Deferred Sales Trust can apply to properties like:


  • Personal Property Investments

  • Commercial Properties

  • Vacation Homes

  • Primary Residences

  • Agricultural Businesses


To put your property into a Deferred Sales Trust you must first establish the trust itself. It must be run by a qualified third-party company, and cannot be put into the care of an immediate family member or someone with a stake in the sale of the trust. If these rules are violated, the IRS will consider your Deferred Sales Trust a sham trust and will require you to pay the full capital gains tax on your sale.


Having established the trust, you can then direct the trust to perform the sale of your property. Once this has taken place, the trust has a number of options for how to direct the proceeds from the sale, all of which are up to you. The trust could simply pay your money to you in monthly amounts. By using an agreed-upon installment contract, you can direct how much you want the trust to pay you so as to most effectively manage your capital gains tax. However, because these payments may still include capital gains tax if they include principle, there are several other options in which you can direct the trust.


- One option is that the trust could reinvest the proceeds from your sale into other investments. Since you were never in control of the money from the initial property sale, this reinvestment could be performed tax-free.


- Another option available to an owner who desires an income but doesn’t want to pay capital gains tax is to instruct the trust’s installment contract to reinvest the sales proceeds and then make interest-only payments, thereby avoiding the capital gains tax.


It’s clear there are many options for how you could deploy your own Deferred Sales Trust. If you’re considering a sale of a high-value property but are put off by potential losses due to capital gains tax, a Deferred Sales Trust is a worthwhile option to consider. We hope this article has shown you how a Deferred Sales Trust might be the tool you didn’t know you were looking for and has given you the information to turn that sale you’ve been dreading into a simpler, more profitable experience.


Contact Adam Ausloos at 414-269-2600 or email at   Adam can help you with multiple tax deferral solutions if a 1031 exchange is not a fit, you can not find exchange property, or the 1031ex will fail for whatever reason.  We can help!


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