Selling a highly appreciated asset is a double edge sword. Everybody concentrates on buying their asset low and selling it high, but many people neglect to consider how much of the sales proceeds they get to keep. Of course realizing sizeable gains are attractive, but capital gains tax treatment can often erode a large portion of the profit.

In the United States, a capital gains tax is a charged on the profit realized from the sale of a non-inventory asset that was purchased at a lower price. Some of the more common assets associated with capital gains are bonds, stocks, real estate or life insurance when sold in a life settlement.

Charitable Installment Bargain Sales are a new strategy being used to reduce one’s capital gains tax exposure. This strategy can actually produce a tax deduction where a taxable event would have traditionally occurred.

A Charitable Installment Bargain Sale occurs when an asset is sold at a discount from an asset owner to a charity. The difference between the asset’s market price, which is established by an appraisal, and the actual sales price creates a charitable contribution. Consequently, the asset seller is entitled to a tax deduction. The charity then pays the asset seller in installments over a predetermined amount of time.

The charity then either sells the asset or holds it for appreciation. However, the charity typically purchases an annuity that guarantees the asset seller’s installment payments for the duration of the payment term. The charity of course benefits by collecting the asset at a discounted price from its actual market value.

Charitable Installment Bargain Sales are being used successfully with a number of different assets. Specifically the strategy is gaining popularity in the life settlement industry. In addition, it is has been used when real estate sellers want an exit from 1031 exchanges without incurring hefty tax bills.

A Charitable Installment Bargain Sale is not appropriate for every asset sale. However, it should be evaluated as a possible exit strategy when attempting to minimize capital gain liabilities. It is just one of many options that are available to asset sellers allowing them to keep more of what they’ve earned.

Want to find out more about a life settlement and taxes, then visit Kelly Ramirez’s site on how to plan for life settlement taxation.