Structured sales and 1031 exchange, tax deferral options for capital gains

In this weeks edition of Speaking of Settlements, Mark Wahlstrom looks at the idea of whether or not 1031 exchange tactics can be used to "wait out" the current void in the structured sale market caused by the departure of Allstate Financial as an underwriter of structured sale annuity funding programs.

Structured sale and 1031 exchange, the key to tax savings?

Structured sale and 1031 exchange, the key to tax savings?

Both concepts, the 1031 exchange and the structured sale, have been around for decades and used successfully in the pre-real estate melt down era of the late 1990's and mid 2000's. However, over the last 5 to 7 years, the collapse of both residential and commercial real estate, coupled with concerns about potentially increased capital gains rates, largely smothered the potential of this once promising concept of tax deferral and cash flow planning using structured sales.

Evidence so far in 2013 suggests that interest in structured sales is surging as real estate prices have begun to rebound at the exact same time as the first substantial increase in capital gains and ordinary income tax rates became law in 2013. More sellers of real estate have been looking for options to spread out the tax hit in a secure fashion and structured sales appear to fill a growing need of tax planners, CPA's and real estate investors of all sizes. In this weeks video Mark examines some timely ideas for those who have pending sales or potential sales and are wondering what options there might be in the interim.

Mark Wahlstrom is the President of Wahlstrom & Associates and one of the nations leading experts in structured sales, Oil & Gas lease bonus structures, structured attorney fee's and mass tort settlement administration.

Structured sales. What to do now that Allstate has left the structured sale market

In this weeks edition of Speaking of Settlements, Mark Wahlstrom looks at the implications of Allstate Financial's recent decision to shut down their structured settlement division, and with it the ability to use their off shore assignment company to write a wide variety of taxable damage and property sale structures.

These unique products fall under a couple of categories, but each of them has the common thread that they require the use of an off shore assignment and benefited from the Allstate Financial name, deep pockets and marketing muscle to get them done.

  1. Structured Sales- The ability to spread out over time the tax hit on the sale of real estate assets. 
  2. Structured Oil and Gas Lease bonus payments- The ability to structure or spread out the tax burden on the up front bonus payments for leasing ground to drill on. A huge new market in the oil-shale fields across the US.
  3. Structured Divorce cases- Again a tool that allowed certain aspects of a divorce settlement to be funded but paid over time.
  4. Structured celebrity endorsement income- A huge potential market focused on spreading out endorsement payments over time.

Each of these were powerful, unique markets and Mark Wahlstrom look's at how you should approach each of them now that the major underwriter is out. There are choices but you need to know what your options are and how to proceed.

Structured celebrity endorsements, renewed interest with 2013 tax increases

As we all know, elections and political decisions on the state and federal level have consequences, with the decade long governmental spending frenzy now leading to much higher marginal tax rates for those fortunate enough to be in the "rich guy" brackets. 

Phil Mickelson looks ahead to a future of high marginal tax rates and their impact on career and financial planning.

Phil Mickelson looks ahead to a future of high marginal tax rates and their impact on career and financial planning.

Early this week PGA golfer and Arizona State University icon, Phil Mickelson made national news by simply articulating the implications for his career and planning that being a resident in the State of California has for him. As he points out in the linked article, his marginal effective tax rate for Federal, State, FICA and ObamaCare surtax is now in the 62% to 63% range, meaning that he gets to now keep about a third of his earnings each year while various governments get to keep two thirds.

As many of our clients and regular readers are aware, there is in the IRC, the ability for celebrity and professional sports figures who receive substantial endorsement income and earnings, to structure/defer that income into future tax years. This is very much the same process by which we structure legal fee income for trial lawyers, structure property and asset sales for farm land and commercial property and even now structure certain aspects of divorce settlements. All of this deferred income is of course secured by life insurance companies with A+ ratings and outstanding financial stability. 

Obviously this is a niche product and an opportunity only viable for a very small category of elite professional athletes  However, the option to privately but strategically plan large sums of income that fall into the highest tax brackets makes incredible sense if done properly and we encourage our clients to contact us to learn more about how this could work for them or their clients. Strategic deferral is a crucial planning tool now that needs to be considered and implemented carefully, but if properly planned can make a huge difference for upper income clients or those faced with a one time tax event that subjects them to the highest marginal rates.

Contact our office, Wahlstrom & Associates, to learn more and watch for our interview later this week with national tax expert Attorney Rob Wood on The Tax Law Channel where we discuss this planning option at greater length.