Alternative Structures for Tax Deferred Transactions in Real Estate

Strategy	Basic Structure	Tax Benefit	Other Benefits	Negatives
Section 1031 Exchange	Seller uses a Qualified Intermediary (QI) to hold funds from sale and then uses funds purchase replacement property (See IRC § 1031)	As a trade of like assets, tax basis of the original property is transferred to the replacement property	Fees to structure are generally less than other strategies	Must be investment property, must identify replacement property within 45 days and close the purchase of property within 180 days of sale of original property
Charitable Remainder Trust	Seller transfers property to a personal Charitable Remainder Trust (CRT). Seller receives payments from the CRT similar to an annuity. Upon death of seller, CRT is dissolved	Current income tax deduction (which can be rolled over for up to five years) and there is no capital gain tax on transferring asset to the trust	Annual income from the trust that is not distributed is not taxable to the trust	Trust can only invest in passive investments and 10% of the assets must go to charity. Few changes can be made after the trust is established.
Private Annuity Trust	Seller sells property at fair market value to an irrevocable trust in exchange for a stream of payment over seller's lifetime. The trust can then sell the property. (See IRC § 72)	Seller pays capital gains and recapture tax as income is received from the trust. Assets are transferred out of a taxable estate, eliminating estate tax that may be due upon seller's death	Can be used to defer gains from primary or secondary residences; and minimize estate taxes. Funds can be invested in virtually any investment. Can be used also as a compliment to 1031 Exchange especially when one partner wants to cash out and the other wants an exchange, or can be used as a safety net when time deadlines have expired.	If seller dies before the end of their life expectancy, beneficiaries are liable for all outstanding taxes at the date of death.
Deferred Sales Trust^tm / Structured Sale	Seller sells property though a specific type of charitable trust or LLC. Seller received proceeds from the trust over several years and pays tax on income as it is received from the trust.	Taxes are paid when seller receives proceeds from the trust, not when the property is sold, presumably after retirement when seller is in a lower tax bracket	Savings of income of estate taxes. Funds can be invested in virtually any investment. Ability to continue deferral for beneficiaries upon early death of seller	Higher fees to structure
Self- Directed IRA	IRA or other Qualified Retirement Plan purchases Real Estate for *Investment Purposes Only* from a non-family member	Income and Capitol Gains are sheltered by the Qualified Retirement Plan		Neither you, your business, nor any family member may live in, lease, or otherwise be located in the property. You may not manage the property, guarantee any loans, nor provide any operating funds.
Tenant in Common Exchange	Sponsor performs due diligence in the purchase of property and then sells an undivided interest in the property to up to 35 investors	May be used in conjunction with 1031 exchange to purchase a percentage interest in property	May be used as a safe harbor for 1031 money	If vacancy increases or property is poorly managed, you may be liable for a capitol call to cover negative cash- flow
Land Banking - a procedure to segregate investment from development income
Source: Commercial Investment Real Estate Nov-Dec 2006: Renkerneyer, Campbell & Weaver; www.knowtax.com. The phrase "Deferred Sales Trust ^tm" is trademarked by Renkerneyer, Campbell & Weaver (used with permission); they have also received a method patent on certain procedures described by the term. Contact info@rcwlawfirm.com for further information.

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