Matt Denny from Denny & Company, LLP first talked about how a person with a substantial estate may avoid having their heirs pay high “death taxes.”
“Very often a lot of death taxes are avoided because a family might set up a foundation,” he said. “So the Getty Center, for example, is funded by the Getty Foundation, which is where he put all of his billions when he died. It’s managed by a board of trustees and I think some family members might be involved.”
In this type of situation, the family is doing something charitable with their profits, “rather than give it all to government or pay taxes on (it),” Denny added.
Another financial choice that could have tax advantages is keeping a house to use as rental property instead of selling it before buying another one, according to Denny.
“There are a lot of tax advantages to doing that, and people accumulate many homes that way by just never selling the home they lived in,” he said. “They just turn it into a rental and move to the next one.”
A 1031 exchange on non-residential property can also save money on capital gains taxes in the case that a person is selling a property that is worth more now than when they first bought it, and instead of pocketing the profits, they roll it into the purchase of another property of like kind, Denny noted.
“Let’s say you have a rental property that you’ve owned for 30 years,” he said. “Obviously 30 years ago you paid a lot less for it than it’s worth now. If you sell it, you would have to pay long-term capital gain taxes on that gain, but you can also postpone that gain by taking the money you get for that and rolling it into another property of like kind.”
Instead of seeing these kinds of situations as loopholes, Denny noted that they are available as a way for the government to “encourage commerce.”
“As a society we want to encourage commerce to happen, and if you’re going to penalize people for doing things, you’re going to get less of it, or if you raise the price of doing something, you’ll get less of it,” Denny said. “That’s true with everything. So if we want people to be mobile, if we want people to invest in real estate, … we shouldn’t penalize them.”
The Santa Clarita CPA firm Denny & Company, LLP was established in 1984, and is a full-service firm of Certified Public Accountants in Santa Clarita, including Partners Matt Denny and Carolyn Denny. The Santa Clarita accountants work with small businesses and individuals, specializing in catering to each client’s unique needs and desires using a flexible approach. As a CPA in Santa Clarita, Matt Denny shares his knowledge and experience regularly on “Common Ground” on KHTS Radio. Those looking for the best CPA in Santa Clarita or a “CPA near me” can contact Denny & Company, LLP for more information today.
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