While the 1031 deferred exchange is a viable means for some real estate owners and investors, many are finding the stringent requirements and the lack of quality properties a barrier to successful completion of a 1031 exchange. With long term tax deferral as a primary objective, many real estate investors are looking for other options to help them eliminate current capital gains taxes.



Though less than 10% of investors are aware of it, the Private Annuity Trust is quickly making its way into the mainstream as a way for investors to not only avoid current capital gains taxes, but also a secure way to protect assets and create a lifetime income.

Affording time to make solid investment choices

Investors don't want to hand over 30% of their profits to the government when they sell their property. Eager to defer taxation, many investors jump into deals before they're ready or initiate transactions that don't provide them with any additional financial benefit simply to avoid capital gains tax. With a 1031 deferred exchange, the property must be identified within 45 days and purchased within 180 days following the sale of the original property.

The Private Annuity Trust puts the power of choice back in the real estate investor's hands, providing the flexibility to invest in good deals when they arise. With a Private Annuity Trust, capital gains tax isn't owed until the money is distributed as lifetime income from the Trust. That means that while you're looking for a profitable real estate development opportunity, the money you would have paid to Uncle Sam is earning interest in the Private Annuity Trust.

Like kind? Affording the freedom to invest in what you choose

One challenge that real estate investors face with the 1031 deferred exchange is "like kind" clause. A 1031 exchange cannot be used for real estate outside of the United States. However, many real estate investors are setting their sites on retirement homes in other countries so a 1031 is not a viable transaction for them to help with tax deferral.

Also, primary residences are not covered by 1031 exchanges, and many homeowners now have significant gain that will be taxable when they sell their home. With a Private Annuity Trust, you have an opportunity to keep all the proceeds from your sale and create a balanced investment portfolio that will fund your lifetime income stream. You have the flexibility to begin taking payments immediately or to defer payments until you need the income.

When are the capital gains property taxes due?

With a Private Annuity Trust, capital gains taxes aren't due until the money is distributed to the seller. Because the Trust agrees to make lifetime payments, capital gains tax is paid incrementally over the seller's lifetime as well. For example, if a real estate investor sells a property through a Private Annuity Trust, the entire profit from the sale, including what he would have had to pay for capital gains tax, remains in the Trust.

As long as there are no annuity payments made to the seller, there is no capital gains tax payment due. The proceeds from the sale and the amount owed for capital gains property tax can remain in the Trust collecting interest until the Trust payments begin.

The Private Annuity Trust benefits real estate investors in the prime of their investing careers by giving them the freedom to decide when, where, and in what they will invest their earned money. For many investors, the Private Annuity Trust has been a critical piece to safe, smart, investing.