Steven and Rene are a successful couple who owned an insurance agency they recently sold to two of their children. They moved to California in the late 1990’s after Steven left the Marine Corp. They bought a big beautiful home in Newport Beach during a recent real estate downturn and raised four children there. While they have enough money coming in to live on, they are not able to enjoy the type of lifestyle they dreamt of and tried to plan for. In part, they were not quite prepared for the cost of putting four kids through college. But they did, and their children are thriving.
Now they have this home that is way too big for their current needs and a ton of equity that they seemingly can’t tap into. They considered doing a reverse mortgage but the limit on the amount available would not get them where they wanted to be. Next they discussed selling so they could downsize and use some of their equity to invest for income. They were told that there was a $500,000 exemption available for homeowners who sold their home, which sounded promising. The problem was that their taxable gain was about $750,000 more than the exemption would shelter. Further, they had previously refinanced to pay for some of those college costs so their net equity would only be enough to downsize into a new home and produce a modest amount of additional income to live on and enjoy life more.
They talked to their Realtor about their options for finding a replacement home that would fit their reduced budget for that purpose. Luckily their Realtor was familiar with the Deferred Sales Trust and introduced them to a DST Trustee to discuss another option for them.
In reviewing their goals and the financial details concerning their home, the Trustee was able to determine that there was a way to pull out enough money tax free to put a big down payment on their desired replacement home. Further, we would be able to help them defer all the capital gains taxes on the sale of their home, giving them substantially more money to invest for the kind of income they wanted to pursue their desired lifestyle.
If you are a homeowner with a similar set of circumstances and want to find out if we can help you in the same way we helped Steven and Rene, give us a call.