How, you might ask, can I avoid paying capital gains taxes until the ripe old age of 70? Well, this tool, which has been around since the 1950s, is shockingly unknown to the vast majority of Americans. Sadly, who knows how many millions of dollars have been paid in capital gains taxes that could have been used toward retirement, college education, medical expenses, or even a trip around the world.

The Private Annuity Trust, (or PAT for short) is an IRS-authorized program outlined under Section 72 of the Internal Revenue Code, which allows a seller of property to defer capital gains taxes at the time of the sale. There is no maximum to the size of the transaction and the PAT can be used on any kind of real estate transaction, whether it is your primary residence, a vacation home, or a commercial and retail developments.

Heres a brief outline of how it works:

Lets say you sell your home for $500,000. The property owner (known as the Annuitant) transfers ownership of the property to the PAT. Then, the Trust pays the Annuitant for the property with a special payment contract call a private annuity. The form of payment is a life annuity. Then, the trust sells the property to the buyer, getting cash for the property.

A private annuity is similar to an installment sale. However, in this case, the private annuity promises to make payments to the Annuitant for the rest of his life. For example, if the value of the property is $500,000, then the face value of the annuity is also $500,000.

The Annuitant is not taxed on the sale since he has not yet received any cash for the sale. In fact, if the Annuitant has other income or doesnt need the annuity payments, he or she can choose to defer the payments until the age of 70. Of course, he or she can also choose to start the payments immediately. However, the payments must begin by the age of 70. As each payment is made to the Annuitant, the calculated installment of the capital gains is paid.

This tax-deferral strategy has many investment and financial options, so it is important to have a very knowledgeable and experienced financial and estate planner who can explain the process thoroughly and will make sure you dont miss any crucial steps. It is also important that you have a real estate agent who is knowledgeable in this area and who can also help make sure the transactions goes as smooth as possible. It is also important for you to have an understanding of this strategy and you must know the Pros and Cons before getting involved. But remember, its just another option.

Lawrence D. Elliott has been a Realtor for over 16 years and provides professional representation for clients in Los Angeles, Orange, San Bernardino, and Riverside counties. He can be reached direct at 1-888-810-SOLD. He also runs a network of real estate web sites, which can be accessed through his main site at http://www.LawrenceElliott.com

New Tax Laws Impact Investors
If you are one of those people who do their own taxes this may be the year to hire an accountant. By now you have probably gotten all of your 1099 forms in the mail from your brokerage accounts and now you need to make sense of it all. There are tw...

Tax Tips For Capital Gains And Losses
Investments are a part of a working persons life. People invest to save tax and to create a fund for retirement or lean times. When filling tax returns one needs to understand many subtle differences in different kinds of investments. A capital gain ...

How To Minimize Your Taxes On Wealth
Taxes on wealth or simply wealth tax is the tax levied on the value of wealth owned by a person. As the term wealth carries with it a broader meaning, generally capital transfer taxes (which include inheritance tax and gift tax), property tax, and ca...

Capital Gains Tax Explained - CGT UK Checklist and How To Pay CGT
Capital Gains Tax ( CGT)What is CGT?It is a tax imposed by the government on individuals who make a gain by selling assets other than their main home, such as making a profit on stocks or profiting from properties which are bought for the purpose of ...

Cyprus Buying Investment Property - How to handle CGT
The Capital Gains Tax rate in Cyprus is 20% of the chargeable gain as adjusted for inflation, but certain lifetime exemptions apply to individuals for the disposal of their main residence. The first CYP10,000 of a gain is exempt. This exemption limit...

6 Tax Filing Tips For Investors
Taxes both federal and state are to be paid by investors. According to financial whizzes every investor needs wise financial planning and astute tax management so that you do not pay more taxes that you need to. Avoiding paying tax is a crime but pay...

1031 Exchange Info Guide 101
A smart tax saving tool that is gaining popularity among the real estate investors by enabling them to defer the entire capital gains tax is 1031 Exchange. Established in 1990 by the Internal Revenue Code Section 1.1031, it gives them an opportunity ...

Tax Planning: Legal And Savings Issues
Tax planning has been in the eye of the storm recently, owing to the many corporate scandals that have shaken the market. If youre small business has franchisees in another country that makes tax planning even more difficult. To avoid problems with t...

Equity Home Loan Mortgages
Normally you think of mortgages taking money out of your pockets but in fact equity home loan mortgages are a good way to greatly increase your wealth. I am of course talking about using your home as collateral to borrow money to purchase more proper...

What is a 1031 Exchange?
The IRS has an exchange provision that allows you to put the extra money you make off the sale of real estate into another equal or higher value property without paying taxes on the capital gains. You cant do this on your primary house, but you can ...