Determine the Strategy That’s Right for You
Long-term capital gains tax applies when you sell assets that you’ve held for more than one year and have increased in value. The long-term capital gains tax rate can vary based on your income level. Additionally, if your income exceeds certain thresholds ($200,000 for single filers or $250,000 for married couples filing jointly), you may also be subject to the Net Investment Income Tax (NIIT) of 3.8% on the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds the threshold. Some states also impose their own capital gains taxes, so it’s important to consider state-specific rules if applicable.
There are various strategies to manage capital gains taxes on highly appreciated assets, such as gifting appreciated assets to family members in lower tax brackets, tax-loss harvesting to offset gains with losses, or using tax-advantaged accounts like IRAs and 401(k)s.
Examples of Highly Appreciated Assets
Stocks and Bonds
Shares of publicly traded companies or corporate bonds that have appreciated in value since their purchase.
Real Estate
Properties such as homes, land, or commercial buildings that have increased in market value.
Collectibles
Items such as artwork, antiques, rare coins, or valuable stamps that have appreciated due to their rarity or desirability.
Business Interests
Ownership stakes in businesses or partnerships that have grown in value over time.
Cryptocurrencies
Digital currencies like Bitcoin or Ethereum that have experienced significant price appreciation.
Precious Metals
Gold, silver, platinum, or other precious metals that have increased in value due to market demand or economic factors.
Mutual Funds and ETFs
Investment funds or exchange-traded funds (ETFs) that hold assets like stocks or bonds which have appreciated in value.
Intellectual Property
Patents, copyrights, trademarks, or other intellectual property rights that have gained value over time.
These assets can appreciate for various reasons, including economic conditions, market demand, scarcity, technological advancements, or changes in investor sentiment. When selling highly appreciated assets, understanding the tax implications and seeking professional advice can help manage potential tax liabilities effectively.
Deferred Sales Trust
Those of us who own businesses, corporations, and commercial or residential investment real estate assets are often reluctant to sell because of capital gains taxes associated with the sale. But what other choice do we have other than a property exchange directed by a qualified intermediary? Is there another way to deal with the capital gains tax deficits that so many investors experience when they sell their real estate assets? The answer may lie in the Deferred Sales Trust™.
The Deferred Sales Trust™ has the potential to generate more money over the long run than a direct and taxed sale. The process begins when a property owner sells their property to a trust owned by a third-party company. The trust sells the property or stock. Next, the trust “pays” you. The payment isn’t in cash, but with a payment contract called an “installment contract” which facilitates payments to you over an agreed period of time. Since the trust “purchased” the property from you for what it sold it for, there are zero taxes to the trust on the sale.
There may be a more suitable or appropriate tax structure depending on your circumstance. We would like to have one of our estate planning team’s tax specialists discuss your specific circumstances and goals with you.
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