Real Estate Case Study

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Real Estate Case Study

Ultimate Real Estate Tax Solution:
Thomas (age 50) has a large real estate portfolio.

Thomas’ advisors have outlined the multiple layers of tax associated with a corporate real estate group:

  1. Capital gains taxes on the value of the shares of the corporate group on death;
  2. Recapture of depreciation on sale of assets;
  3. Capital gains on the sale of assets; and
  4. Dividend tax on the distribution of surplus to the shareholders.

Thomas wanted a liquidity and tax solution but had two constraints:

  1. Use someone else’s money to fund the program (he was well versed with the power of intelligent leverage);
  2. Limit the funding period in which Thomas would be required to support interest payments;

Succession America put a program together that would accomplish the following

  1. Pay $25 million at age 90 (and create a capital dividend of $25 million), thereby eliminating the tax on the distribution of $25 million of surplus;
  2. Retire a cumulative loan of $10 million, and pay a residual of $15 million to address the corporate taxes associated with the sale of any assets;
  3. Limit the interest (out of pocket) to $1M (in total), satisfying Thomas’ immediate constraints.

They compared to a CDN policy which would have yielded $6 million vs. $15 million. Thomas immediately secured the Succession America solution.

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