The good news is that your cryptocurrency investment went through the roof and proceeded on up into the stratosphere. The bad news is that you want to sell before the volatile crypto market crashes, like it frequently does, but you know you will face a huge capital gains tax if and when you do.
Or the good news is that your vested RSUs have substantially appreciated in value. The bad news is that you want to sell some of them so as to diversify your investments, but you already took an income tax hit. The last thing you need is to now take a capital gains tax hit as well.
In both of these scenarios, a Deferred Sales Trust (DST) can solve your dilemma. You pay no capital gains tax when you sell your highly appreciated assets to your DST in exchange for a secured installment sale note rather than to a buyer in exchange for cash. In addition, you and your Reef Point Independent Certified DST Trustee can then devise an investment strategy in keeping with your diversification desires and your risk tolerance.
Let’s take a look at two California case studies to see how the DST works in each.
Cryptocurrency Scenario
Assume you own $4 million in cryptocurrencies for which your basis is only $300,000. Consequently, your taxable gain is $3.7 million. With no DST in place, this translates into a $1,372,700 capital gains tax composed of the following three elements:
- 20% federal tax
- 13.3% California state tax
- 3.8% Medicare tax
This scenario leaves you with only $2,627,300 left to invest.
On the other hand, by utilizing the DST, you can invest your full $4 million sale price.
RSU Scenario
Assume you own $7.5 million in vested RSUs for which your basis is $2.5 million. This gives you a taxable gain of $5 million using the same three component percentages as above, resulting in a capital gains tax hit of $1,855,500 and a remainder of $5,645,000 to invest. By utilizing the DST, you can invest your full $7.5 million sale price.
Reinvestment Options
One of the beauties of the DST is that you can use your tax-free sale proceeds to invest in “any prudent investment,” leaving you free to invest in any of the following:
- Stocks
- Bonds
- Equity funds
- Annuities
- Real estate
- REITs
- Life insurance
- And more . . .
Additional DST Advantages
In addition to capital gains tax deferral and vast reinvestment options, your DST can likewise provide you with the retirement income you need – when you need it. For instance, you and your Trustee can structure your DST installment sale note such that you receive no payments until some point in the future.
With the proper estate planning, your DST can also help you maintain family wealth, avoid probate and pass on your assets to your heirs with as few taxes as possible.
And remember, the DST is a safe, legal, tested and proven strategy.
Want More Information?
Contact Reef Point to obtain more information about how a DST can work to your advantage when you sell your highly appreciated cryptocurrencies or RSUs.
Let’s take a look at two California case studies to see how the DST works in each.