Who Owns Real Estate Or A Business? :Meet Bob and Martha… Bought an investment home for $1,000,000 Selling the home for $2,000,000 Equity gain: $1,000,000 No mortgage payoff Married, both age 60 30 year actuarial life Who Owns Real Estate Or A Business?


Slide 2:Normal Transaction Real Estate Sell Property Bob & Martha Age: 60 Sale Price $2,000,000 Net Sale Proceeds $2,000,000 Taxable Gain $1,000,000 $


Slide 3:Normal Taxation $1,757,000 After tax proceeds Taxes: $243,000 Real Estate Sell Property Sale Price $2,000,000 Bob & Martha Age: 60 Federal and State* taxes 24.3% *California Net Sale Proceeds $2,000,000 $


Slide 4:Normal Transaction vs. The Plan Real Estate Sell Property The annual distribution and actuarial calculations are taken from an illustration. Assumptions: $2,000,000 compounds at 7% annual growth over a 30-year period, net of a $139,368 distribution paid annually. Results shown are after-tax. Tax liability varies with type of investment -- typically tax-efficient and tax-deferred. This scenario assumes earnings taxed at capital gain rates. Normal Transaction is using the same assumptions as the above with the exception of a $243,000 beginning tax payment. This scenario makes certain assumptions in order to illustrate the important aspects of this program. These assumptions may not and are not intended to be representative of the situation that all sellers of real estate property face. The particular circumstances which prospective sellers face exert an effect on the outcome of this strategy and, in turn, influence whether it is suitable for a client to undertake. There may also be additional considerations not accounted for in this example that may further affect whether this plan is appropriate for a particular property seller. Therefore, prior to engaging in this transaction, it is necessary that the prospective participant review their tax situation with their tax advisor to ascertain if this type of program is right for them. Both assume 7% return and $139,368 per year for 30 years Normal Transaction: $1,757,000 becomes $209,890 With the Plan: $2,000,000 grows to $2,041,408 The Difference is the compounding of the $243,000 for taxes $


Slide 5:IRS receives 100% of the tax due but it is paid over the length of the installment contract rather than paid in full up front. It’s like an interest free loan from the IRS! Annual Income Recap: Tax Free Basis $ 30,392 Capital Gain $ 34,967 Ordinary $ 74,009 Total Income $139,368 Real Estate Sale Price $2,000,000 $ Bob and Martha pay taxes:Capital gains = $8,497 and ordinary income tax which is a percentage determined by their tax bracket The Plan


Slide 6:Questions Bob & Martha Had On The Plan Can we use a portion of the proceeds to re-invest in real estate at a later time? Yes If I’m in escrow right now can I still use The Plan? Yes Can I use a The Plan to sell my business or commercial real estate? Yes


Slide 7:The Plan Advantages Advantages: Defers capital gains tax Income tax savings – when highly appreciated property is sold the seller defers recognition of gain until receipt of payments Estate Tax Savings – With additional planning The Plan removes transferred property and all future appreciation from the estate without use of gift or estate tax exemptions Maintains Family Wealth – Maintains wealth within the family Estate Liquidity – Converts an illiquid asset into monthly payments Payment Flexibility – Provides a flexible income from The Plan Asset Protection – The Plan may place the transferred property beyond the reach of potential creditors and litigants if the transferor retains no interest in the transferred property