This past Sunday, I was Tom Kelly’s guest on KIRO Radio’s Real Estate Today. Tom does a great job educating all of us about real estate. You can catch a podcast of the program here
If you are a landlord who wants to finally get out of the “landlording” business, but you cringe at the thought of paying tax on all of that depreciation you have taken over the years (yes, that’s right, you have to recapture all of that phantom depreciation and pay tax on it) and you don’t really want to pay capital gains tax on the balance of the gain, then maybe you should think about using something called a charitable remainder trust.
In a nutshell, if you have a rental property that is paid for but you have depreciated the heck out of it, and you no longer want to be a landlord, you can create a special trust to allow for the sale of the property without tax obligation. With the help of your favorite attorney, you establish a charitable remainder trust. You then transfer the real estate into the trust and proceed to market the property for sale. The trust sells the property and reinvests the proceeds in stocks, bonds, and any other prudent investment that you choose. You proceed to enjoy annual income and you receive an upfront charitable tax deduction for a percentage of the value of the rental property (depending on your age and what kind of a return you want – a minimum of 5%). Are there catches to this? Of course, and there are many rules that apply to this type of transaction, but it may be something to explore if you have an appreciated asset that you would like to sell and you don’t want to pay the tax that is otherwise due. Find out more about charitable remainder trusts.