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Return To Annuity Article Archive   Search the Article Archives Avoid Paying Capital Gains Until The Ripe Old Age of 70 By Lawrence D. Elliott How, you might ask, can I avoid paying capital gains taxes until the ripe old age of 70? Well, this tool, which has been around since the 1950s, is shockingly unknown to the vast majority of Americans. Sadly, who knows how many millions of dollars have been paid in capital gains taxes that could have been used toward retirement, college education, medical expenses, or even a trip around the world. The Private Annuity Trust, (or PAT for short) is an IRS-authorized program outlined under Section 72 of the Internal Revenue Code, which allows a seller of property to defer capital gains taxes at the time of the sale. There is no maximum to the size of the transaction and the PAT can be used on any kind of real estate transaction, whether it is your primary residence, a vacation home, or a commercial and retail developments. Heres a brief outline of how it works: Lets say you sell your home for $500,000. The property owner (known as the 'Annuitant') transfers ownership of the property to the PAT. Then, the Trust 'pays' the Annuitant for the property with a special payment contract call a 'private annuity.' The form of payment is a life annuity. Then, the trust sells the property to the buyer, getting cash for the property. A private annuity is similar to an installment sale. However, in this case, the private annuity promises to make payments to the Annuitant for the rest of his life. For example, if the value of the property is $500,000, then the face value of the annuity is also $500,000. The Annuitant is not taxed on the sale since he has not yet received any cash for the sale. In fact, if the Annuitant has other income or doesnt need the annuity payments, he or she can choose to defer the payments until the age of 70. Of course, he or she can also choose to start the payments immediately. However, the payments must begin by the age of 70. As each payment is made to the Annuitant, the calculated installment of the capital gains is paid. This tax-deferral strategy has many investment and financial options, so it is important to have a very knowledgeable and experienced financial and estate planner who can explain the process thoroughly and will make sure you dont miss any crucial steps. It is also important that you have a real estate agent who is knowledgeable in this area and who can also help make sure the transactions goes as smooth as possible. It is also important for you to have an understanding of this strategy and you must know the Pros and Cons before getting involved. But remember, its just another option. About the Author: Lawrence D. Elliott has been a Realtor® for over 16 years and provides professional representation for clients in Los Angeles, Orange, San Bernardino, and Riverside counties. He can be reached direct at 1-888-810-SOLD. He also runs a network of real estate web sites, which can be accessed through his main site at http://www.LawrenceElliott.com Annuity Calculator Deferred

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