Steps to Take Before Selling Property

Selling a high-value asset may prove one of the most important legal transactions you undertake. When you have worked hard to build wealth through assets such as real estate, businesses, or investments, you deserve to maximize the value you’ve created when you sell those assets. An experienced legal advisor can walk you through the steps to take before selling property so you can avoid pitfalls that may lead to unintended financial consequences.

The legal team at 453 Deferred Sales Trust Powered by Pennington Law has extensive experience advising clients through legal strategies designed to manage the tax consequences of asset sales, such as a deferred sales trust. Our in-depth insights have earned us recognition as the Best Deferred Sales Trust Law Firm in the U.S. in 2024. Our firm works with clients nationwide, boasting a team of knowledgeable attorneys who practice in the following areas:

● Tax law
● Asset protection
● Financial advisory services
● Estate planning and trusts
● Wealth and fiduciary matters
● Irrevocable trusts
● Professional third-party trustee duties
● Financial reinvestment
● Insurance

When you decide to sell property that has increased in value while you’ve owned it, knowing what steps to take before the sale can help you protect your financial interests and preserve the value you’ve gained in the asset. Contact 453 Deferred Sales Trust Powered by Pennington Law for a free initial case evaluation with a knowledgeable deferred sales trust attorney to discuss the benefits of deferred sales trusts — “The Tax Tool You Didn’t Know You Had.”

What Should I Do Before Selling My Property?

Before you sell an asset that has gained value while you’ve owned the property, you should undertake specific steps that can help you with financial and legal planning to protect your interests and achieve your objectives from the sale. These include the following:

● Property Valuation – First, you must obtain a professional valuation to determine a fair price for selling the asset. Depending on the type of asset, you might seek the services of a real estate appraiser, business appraiser, or financial analyst who can value illiquid investments. Determining the valuation for your asset will also help you calculate the potential capital gains taxes from the sale, so you can determine whether to take legal steps to manage the tax implications from the sale.

● Disclosure Requirements – An attorney can also help you determine what due diligence and disclosures you should make to a prospective buyer, such as the condition of real estate or representations and warranties regarding a business’s operations, finances, and liabilities.

● Title Search – When selling assets like real estate, you should conduct a title search to ensure you can warrant to the seller that you can deliver a clear, marketable title. A title search can help you identify potential defects in the property’s title that you may resolve before entering a sale agreement with a buyer.

● Title Transfer – Selling titled assets will require you to transfer the title through the appropriate recording agencies. Depending on how you structure the sale, you may work with an escrow agent who can hold the title pending completion of the sale transaction.

● Transferring Utilities – When selling a real estate asset, you should make sure the responsibility for utilities, including water, sewer, or municipal waste collection, gets transferred to the buyer so you no longer have any obligation to pay those utilities after the sale.

● Updating Insurance – Finally, you should work with your insurance providers to adjust your insurance coverage to account for the sale of the asset. Updating your insurance can help protect you from liability for claims against the asset that arises after selling the property.

What Financial Considerations Should I Take Into Account When Selling Property?

Specific financial matters you should consider when selling property or another asset that has appreciated during your ownership include the following:

Tax Liabilities

First, you should evaluate the potential tax liabilities from selling your property. When you sell an asset that has increased in value since you bought it, you may have to pay capital gains taxes on its increased value. Various kinds of assets may trigger other taxes in a sale. For example, selling real estate in some jurisdictions can trigger transfer taxes.

Calculating Capital Gains Tax

Determining how to structure your property sale may depend on your capital gains tax liability from the sale. The IRS typically imposes a capital gains tax of 15 percent or 20 percent, depending on the seller’s filing status and household income; low-income households may owe no capital gains tax. Certain assets, such as qualified small business stock, collectibles, and unrecaptured 1250 gains, have different capital gains tax rates. Most states also impose capital gains taxes.

How Can IRC 453 Benefit Me When Considering Selling Property?

Internal Revenue Code §453 may help you manage the tax implications of a property sale. IRC 453, which governs the taxation of income from an installment sale, allows property sellers to structure their sale through a “deferred sales trust.”

A seller may use a deferred sales trust (DST) to sell a property when they set up a bona fide third-party trust before the sale and transfer the asset to the trust, which sells the asset to the ultimate purchaser. In exchange, the seller receives an installment payment contract that governs how the trust will pay the
proceeds of the sale to the seller.

Under IRC 453, the seller pays capital gains tax only on the portion of the sale proceeds they receive from the DST in a tax year, mitigating the impact of capital gains taxes if sellers have tax offsets in future years. Thus, IRC 453 may allow property sellers to spread out capital gains taxes from an asset sale over
multiple years.

However, a person can also use a DST to reinvest the sale proceeds and only pay income generated from the proceeds, allowing a seller to defer capital gains taxes indefinitely if the principal from the sale proceeds remains in the trust.

How 453 Deferred Sales Trust Powered by Pennington Law Can Help You

Here’s how the legal team at 453 Deferred Sales Trust Powered by Pennington Law can help you with leveraging IRC 453 as part of the process of preparing to sell an appreciated asset:

Review Your Financial Circumstances and the Details of Your Asset Sale

Our attorneys will take the time to thoroughly evaluate your financial considerations and the details of your proposed asset sale to determine whether establishing a deferred sales trust or other tax-deferred exchanges can help you minimize the potential costs of selling an asset due to capital gains and other
tax liabilities. Our firm can review the type of asset you plan to sell, the potential terms of a transaction, and your financial circumstances to help you choose the appropriate legal strategy.

Discuss Your Needs and Goals to Determine Whether a Deferred Sales Trust Is the Right Tool to Help You Meet Them

We will discuss your financial needs and goals to help you decide whether a deferred sales trust can help you meet your objectives for selling an asset. Our attorneys can discuss your need for liquidity, concerns about additional consequences from capital gains taxes, and preference for reinvesting the proceeds of
your asset sale.

Establish a DST Correctly to Avoid Pitfalls

Our legal team has the experience and insights to correctly establish a deferred sales trust to help you gain the full tax benefits of a DST. Our firm can help you avoid potential mistakes that may cause you to lose the ability to defer capital gains taxes, which may result in you having to pay full capital gains tax on your asset sale, plus penalties, fees, and interest. We will support you in reaping the financial benefits and achieving your intended goals by structuring your asset sale through a deferred sales trust.

Structure Your Deferred Sales Trust to Meet Your Unique Goals

Our lawyers will work with you to structure your asset sale and deferred sales trust to meet your specific financial objectives from the sale. When you wish to manage the capital gains tax burden from selling an appreciated asset, we can set up your DST to pay out the sale proceeds over time, enabling you to pay capital gains taxes in stages. However, if you choose to use the proceeds of your asset sale to create a source of long-term family wealth, we can help you create a DST that pays only income from reinvesting the sale proceeds, allowing you to defer capital gains taxes from the sale indefinitely.

Contact Our 453 Deferred Sales Trust Lawyers Today

Before selling a high-value asset, you can best protect your financial interests by speaking with a deferred sales trust attorney about the option of structuring the sale through a DST. Let our legal team discuss the steps you can take to manage the tax liabilities from an asset sale and help you maximize its value. Contact 453 Deferred Sales Trust Powered by Pennington Law today for a free, no-obligation consultation.