When a person sells a property other than his living abode
he is charged with a tax payment which is a percentage of his capital gain
amount along with a realized gain tax. Capital gain is any amount a person
receives upon selling of a property that is greater than its original price.
And realized gain is earned upon sale of assets used in the farm such as the
equipment, livestock, barns, wells, fences, sprinkle system.
Careful planning prior to sale can help you save amount to
be paid in tax.
Financial Tools To Help You Defer Tax
The value that is taxable is usually a 15 or 50% of the
capital gain amount however it depends on the gain amount itself. With zero
knowledge in handling financial matters you cannot tackle this matter in a
better way all alone. Although if you hire a professional financial advisor in
the field, he will guide you along this path by using financial tools that will
help you defer or bypass sale tax payment effectively. So you are able to
reinvest or generate passive income for yourself and your loved ones, after
your death.
The advisor will use tax deferring financial strategies like
IRC Section 121, 1031, 664. All of them are elaborated separately below.
IRC Section 1031 Exchange Tool
With the 1031 exchange tool the farm seller makes purchase
of another property of equal or more value than the one he is selling. This
tool helps in diverting the attention from sale tax to purchase of another
property of similar or greater value, deferring tax payment.
IRC Section 664 Charitable Remainder Trust Tool
By using 664 CRT tool, the farm owner uses the help of a
trustee and places the property in the name of the trust. With this, the owner
enters into a contract with the trust of paying the owner a percentage of the
profit they will make by investing his property. This profit percentage on the
investment is a source of income for the farm owner and tax is not charged on
him anymore. By using this tool for selling a farm, the seller meets several
benefits
·
He will be free from the hassle of managing the
farm, facing any costs or other losses.
·
He will continue to receive an amount of income
on it which will be passed on to his loved ones upon his death.
·
Upon entering the contract with the trust, the
owner becomes tax free and doesn’t have to lose money in tax payments.
·
He will be doing something for a greater good by
placing the property in the name of the charitable trust.
IRC Section 121 Principal Residence Exclusion
Realized gain or ordinary income in the year of the sale is
not usually recognized when you use this tool. A property owner is allowed to
exclude around $250000 of taxable gain with 121 tool.
It becomes harder for you to Selling A Farm in Texas realizing a substantial amount, which could have been your surplus
or income, will now be deducted with tax charge. A financial advisor who
invests his abilities in the wellbeing of his clients, will guide you through
an easy, profitable sale journey so you get to maximize your wealth for the
future of your loved ones.
