Specializing in retirement planning and personalized investment management.

Rental Property Disbursement

Rental Property Disbursement

Rental Property Disbursement

Your attitude towards rental properties may be different now, than when you were younger.  Tenant issues and dealing with repairs may not be what you have in mind for retirement.  You may want to simplify your life.

An outright sale of your rental property might be the easiest approach.  You sell the property, collect your proceeds, pay your taxes, and use what’s left for retirement.  The problem is taxes could take a large chunk out of your proceeds. Not only do you have to pay capital gains taxes, but you also have to pay taxes (25%) on accumulated depreciation due to “depreciation recapture”.

1031 Exchange
With a “10-31” exchange, you can defer gains from the sold property by identifying and acquiring “like-kind” property with a certain time period.  You essentially replace one or more properties in exchange for another property.  This may be helpful if you own multiple properties and would like to consolidate them into one property. You could even exchange into a property you eventually wouldn’t mind living in (thus qualifying for primary residence tax breaks).

1031 exchanges are more difficult to execute than an outright sale due to special rules and timelines.  Make sure to consult with a tax professional and plan your moves in advance of selling your property.

Charitable Remainder Trust (CRT)

A charitable remainder unitrust is an irrevocable trust that distributes a fixed percentage of its assets to a beneficiary and, after a certain time period, then distributes the remainder share to a charity.

A rental property owner could set up a CRT, place the property in the trust, and then sell the property.  The owner would then invest the proceeds in an investment portfolio.  The owner would avoid capital gains taxes and possibly depreciation recapture.  They would also get an upfront tax deduction and lifetime income based on a percentage of assets in CRT.  The assets in the trust are revalued each year.  Depending on whether they went up or down, the owner’s distribution from the CRT would go up and down as well.  At the end of the owner’s life, the remaining assets in the CRT would be transferred to a charitable organization.

There are other planned giving strategies like charitable lead trusts and charitable gift annuities, but the CRT is the most common vehicle.  Philanthropic interests are a plus with this strategy.