Posts Tagged ‘capital gains tax’

Put Your Property Easement Agreement To Work

Tuesday, December 16th, 2014

The shale oil and gas play has spurred a significant amount of pipeline and infrastructure activity throughout certain areas of the United States. As a result, many landowners are now being approached by landmen armed with cash offers and easement agreements in the hopes of acquiring the right to use your property to process and transport oil and gas related products. Before you sign on that dotted line, be sure to seek advice from someone well versed in the complexities of property easements.

Be An Informed Property Owner

You probably want to keep as much money in your bank account as possible. So when it comes to paying your taxes, you probably have no intention of giving the government more than its fair share, right? Did you know that when you enter into certain agreements, such as land easements, you may be able to dictate the type of tax treatment your income receives? The trick is to fully understand the tax consequences of language in the agreement.

The tax treatment of a land easement typically is determined (at least in part) by the easement agreement itself. The easement language will either determine if the agreement is for a permanent (or perpetual) easement period, which is exclusive in nature; or if it’s a temporary easement, which will be effective for a finite period of time.

Understand Your Options

If you enter into a permanent easement agreement, the taxable part of the transaction could qualify for capital gains, which may result in an opportunity to save some money during tax season. If you are able to apply the capital gains tax treatment to the income generated from the land easement contract, as opposed to the ordinary income tax rate, you could stand to see your tax rate that is applied to this income drop by almost half.

  • Capital Gains tax rate = 20 percent
  • Regular Income tax rate = 39.6 percent

On the other hand, if you are looking for another option, which could eliminate current payment of tax all together (defer the tax consequence into the future), you might consider the like-kind exchange tax planning strategy. Like-kind exchange rules require the property that is exchanged and the property that is acquired to be held for productive use or investment purposes.

Agreements that receive like-kind treatment under U.S. Code 1031 may result in the deferral of your taxes being due until well into the future or until you dispose of the property acquired in the like-kind exchange. For this to work, the easement agreement must be considered perpetual or permanent and must also involve real estate that is used as part of your trade or business or that is being held for investment purposes.

Don’t Disqualify Yourself

While the thought of exchanging your land easement for other real estate while deferring your taxes may seem attractive, the process of entering into, and maintaining, a like-kind exchange is very complex and must be strictly adhered to. In other words, you will need to seek out help to navigate the waters. If you would like to see if you qualify for a like-kind exchange, email Rea & Associatesfor more information. And remember to always consult your current financial advisor or another professional well versed in like-kind exchange taxation, before signing any land easement contract. Failure to do so may disqualify you from favorable like-kind exchange treatment.

By Jim Fracker, CPA (Zanesville office)

 

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What Tax Liabilities Accompany Inherited Real Estate?

Wednesday, February 26th, 2014

So you just inherited some real estate. You’re probably now wondering – is this a blessing or a curse? From the tax perspective, of course. And that’s a good question to ask. Just because you inherit something doesn’t mean that you’re free and clear of any potential tax liabilities. Depending on how you use the property and if you sell it will determine if you have a taxable situation. So here’s what you should know about taxes and inherited real estate.  (more…)

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How Do You Prepare to Sell Your Business?

Wednesday, February 20th, 2013

Do you plan to sell your business someday? Although you may not think of your business as a traditional retirement plan, it may be the largest asset you have to “cash in” upon retirement. There are many issues to consider when thinking about selling your business.

Timing of Business Sales

One of the first things a potential buyer is going to ask for is historical financial statements. If your most recent financial statements show healthy profits, you are more likely to be able to justify a larger selling price than trying to sell your business after several less profitable years.

Current developments in your industry may also impact the timing of when you want to sell your business. Do you anticipate new government regulations that could impact your business? Or is there a trend of consolidations in your industry? If so, this may increase the value of your business.

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