Summary of Tax Deferral and Tax
Exclusion Strategies

There are numerous tax-deferral and tax-exclusion income tax strategies available to individuals, corporations and institutions. It is important for you to consider all of the available options before proceeding with a specific tax-deferral or tax-exclusion income tax planning strategies.

This concise overview of some of the available tax-deferral and tax-exclusion income tax strategies will assist you in evaluating the various options available to you and prepare you for your conversation with your legal and tax advisors.

Section 1032 — Exchange of Corporation Stock for Property

Section 1032 of the Internal Revenue Code ("1032 Exchange") provides that no gain or loss shall be recognized to a corporation on the receipt of money or other property in exchange for stock (including treasury stock) of such corporation.

This type of exchange transaction does not apply to real estate and there is no need for a Qualified Intermediary.

Section 1034 — Rollover of Gain from Sale of a Primary Residence (REPEALED)

Section 1034 of the Internal Revenue Code ("1034 Exchange") was repealed and replaced by Section 121 of the Internal Revenue Code. However, it is important to understand what Section 1034 was all about, what changed with the repeal of this Section and what the differences are between the old and new laws.

Section 1034 of the Internal Revenue Code allowed an owner of real property that was used as his or her primary residence to sell or otherwise dispose of the primary residence and defer 100% of his or her capital gain tax liability by acquiring another primary residence of equal or greater value.

Qualified Intermediaries were not required for Section 1034 exchange transactions.

Section 1035 — Exchange of Life Insurance, Endowment or Annuity Contracts

Section 1035 of the Internal Revenue Code ("1035 Exchange") allows owners of life insurance, endowment, or annuity contracts or policies to exchange or swap these contracts for other life insurance, endowment, or annuity contracts or policies and defer the income tax consequences.

This type of exchange transaction does not apply to real estate and there is no need for a Qualified Intermediary.

Section 453 — Capital Gain Deferred with an Installment Sale Carry Back Note

Section 453 of the Internal Revenue Code ("Installment Sale Code") allows you to defer your capital gain income tax liabilities when you carry back a promissory note or installment note on the disposition (sale) of your property. This structure is often referred to as a seller carry back note, seller carry back financing or installment sale treatment.

Seller Carry Back Financing

Generally, you sell your property and carry back a promissory note to help the buyer finance the acquisition of your property. You are then able to defer the recognition of your capital gain income tax liabilities until principal payments are received by you over the term of the promissory note.

Deferred Sales Trust

The structure can also be used through a Deferred Sales Trust. You sell your property to the Deferred Sales Trust in return for an installment note (seller carry back note) from the Deferred Sales Trust. The Deferred Sales Trust then sells your property and receives the proceeds.

It is extremely important to note that depreciation recapture is not be deferred under an installment sale and will be recognized in the year in which the disposition (sale) occurred.

Other Tax-Deferral and Tax Exclusion Strategies

Charitable Remainder Trusts permit you to transfer your highly appreciated property or asset into a Charitable Remainder Trust (CRT) for the benefit of charities selected by you. The CRT provides you with an immediate income tax deduction for the "donation" of the property or asset into the CRT, allows you to immediately dispose of (sell) the property or asset without incurring any depreciation recapture or capital gain income tax liabilities, and then reinvest the net sales proceeds into investments providing better cash flow opportunities. There are different types of CRTs, so you should discuss your options with your legal, tax and financial advisors.