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How to avoid capital gains tax on the sale of real estate

How to avoid capital gains tax on the sale of real estate
Michael and Susan purchased land outside of town. Development over the years has significantly increased the value of their land.

Over the years, development from town has moved toward the property, and their land is now next to a large commercial store. Howard and Lynn rent the property to the commercial store, which uses the property for overflow parking.

Michael: We had owned the lot for 20 years and were ready to sell it.

Susan: Our tax advisor told us if we sold the land, we would have to pay capital gains tax of 20% on the increased value of the property. We bought the property for $30,000. When we went to sell it, it appraised at $1,600,000. If we had sold the land outright, we would have paid more than $300,000 in capital gains tax. Our advisor explained how a charitable remainder trust would help us avoid capital gains tax, increase our income, and benefit charity.

What does a charitable remainder trust do?

A charitable remainder trust lets you convert a highly appreciated asset like stock or real estate into lifetime income. It reduces your income taxes now and estate taxes when you die. You pay no capital gains tax when the asset is sold. It also lets you help charities that are important to you.

How does a charitable remainder trust work?

You transfer an appreciated asset into an irrevocable trust. This removes the asset from your estate, so no estate taxes will be due on it when you pass away. You also receive an immediate charitable income tax deduction.

The trustee then sells the asset at full market value, paying no capital gains tax, and reinvests the proceeds in income-producing assets. For the rest of your life, the trust pays you an income. When you pass away, the remaining trust assets go to charities you have chosen. Thatís why itís called a charitable remainder trust.

Michael: By transferring the land to the trust, we saved $314,000 in capital gains tax and received a charitable income tax deduction that reduced our income taxes by more than $70,000. Plus, when the trust comes to an end, Oakland Symphony will receive what remains in the trust - a gift of more than $300,000.

Is a tax-free sale from a charitable remainder trust right for you?


If you own highly appreciated property, such as real estate or stocks, you could benefit from a charitable remainder trust. The trust will help you avoid capital gains tax, give you a charitable income tax deduction, and could increase your income.

Click here to open a calculator and view the benefits of setting up your own charitable remainder trusts.br />

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