Trying to lower tax on short term capital gains. Do conservation easements work?

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Topic Author
mask107
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Trying to lower tax on short term capital gains. Do conservation easements work?

Post by mask107 »

Any advice would be much appreciated!
Last edited by mask107 on Sat May 09, 2020 3:25 pm, edited 2 times in total.
clown
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by clown »

I'm confused about what you are trying to say;
  • Are you saying you invested a total of $800k and made some money?
  • Are you saying you made $800K in gains?
  • Are you saying you have an $800k tax exposure and you are trying to minimize it?
Those are three completely different things. Which do you mean?
Topic Author
mask107
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mask107 »

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Last edited by mask107 on Mon May 18, 2020 7:46 pm, edited 1 time in total.
mega317
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mega317 »

buy stocks and hope for losses
https://www.bogleheads.org/forum/viewtopic.php?t=6212
mass_biker
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mass_biker »

Charitable gift..,!
gclancer
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by gclancer »

Look on the bright side - you made $400k day trading. Seems like a good year to me.
neoptolemus412
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by neoptolemus412 »

Unless you have a business that generated the trading activity, which is highly unlikely, you’re likely out of luck. At those numbers, I’d hire a cpa knowledge me about CA tax as federal is tough to run away from, but SALT may be able to be addressed by residency.
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mask107
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mask107 »

Has anyone tried conservation easements?
alfaspider
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by alfaspider »

mask107 wrote: Thu Apr 30, 2020 8:04 pm Has anyone tried conservation easements?
I would be wary. Certain iterations of the conservation easement strategy have been put on the listed transaction list (generally not a good idea to engage in a listed transaction affirmatively). You will also need to be prepared to defend the value of the easement.

As a general matter, it’s always fraught to look for a magic bullet on the tax side. At a minimum, consult competent counsel on something like this. Never rely on a promoter and never take tax advice from someone who had something to gain from your proceeding with a transaction.
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mask107
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mask107 »

alfaspider wrote: Thu Apr 30, 2020 8:11 pm
mask107 wrote: Thu Apr 30, 2020 8:04 pm Has anyone tried conservation easements?
I would be wary. Certain iterations of the conservation easement strategy have been put on the listed transaction list (generally not a good idea to engage in a listed transaction affirmatively). You will also need to be prepared to defend the value of the easement.

As a general matter, it’s always fraught to look for a magic bullet on the tax side. At a minimum, consult competent counsel on something like this. Never rely on a promoter and never take tax advice from someone who had something to gain from your proceeding with a transaction.
Last edited by mask107 on Mon May 18, 2020 7:47 pm, edited 1 time in total.
soxfan10
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by soxfan10 »

mask107 wrote: Thu Apr 30, 2020 8:22 pm
alfaspider wrote: Thu Apr 30, 2020 8:11 pm
mask107 wrote: Thu Apr 30, 2020 8:04 pm Has anyone tried conservation easements?
I would be wary. Certain iterations of the conservation easement strategy have been put on the listed transaction list (generally not a good idea to engage in a listed transaction affirmatively). You will also need to be prepared to defend the value of the easement.

As a general matter, it’s always fraught to look for a magic bullet on the tax side. At a minimum, consult competent counsel on something like this. Never rely on a promoter and never take tax advice from someone who had something to gain from your proceeding with a transaction.
I was told the audit will be at the partnership level and not on my personal return right? I am trying to find a legitimate fund and am open to recommendations
Treat conservation easements like you would nuclear waste and stay far far away, especially if they are being promoted in a partnership setting - you're looking straight at a listed transaction (or substantially similar). The IRS knows what is going on and has made it an absolute priority over the past couple of years.

At the absolute least, do not invest in any partnership that is promising or implying deductions in excess of your amount contributed. To answer your question, the exam may start at the partnership and under recent law, the IRS can collect tax from the partnership directly. That said, if you're looking at a syndicated charitable easement partnership, there isnt going to be cash at the partnership and the IRS will come after you.

Further, listed transactions have a disclosure requirement. If not disclosed, the IRS can levy a penalty, in addition to other applicable penalties of 75% of the tax that would be due, capped at $200k. Suffice it to say you're in the land where the risk of venturing into these types of transactions is well in excess of any benefit.

If you are convinced that you are interested, this is land of significant tax counsel. Be prepared to pay in the realm of $40-50k if you want solid advice.
soxfan10
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by soxfan10 »

Just adding a second post to add - much like the shelters of the 1970s and 80s, the only way these work and create positive after tax returns is to have unrealistic valuations. This is even more so now than it was 40+ years ago when federal rates were as high as 70%. The promoter needs to get paid and the investor needs a tax effected benefit that is worth more than the cash contributed. Unfortunately the only way that works is to value things in a completely unrealistic manner - in the 70s and 80s it was cattle being valued at 4-5x of market, now its just a more esoteric property right.

Otherwise why not just actually donate to a cause you believe in - that will eliminate your tax burden.
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Raymond
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by Raymond »

mask107 wrote: Thu Apr 30, 2020 8:22 pm
alfaspider wrote: Thu Apr 30, 2020 8:11 pm
mask107 wrote: Thu Apr 30, 2020 8:04 pm Has anyone tried conservation easements?
I would be wary. Certain iterations of the conservation easement strategy have been put on the listed transaction list (generally not a good idea to engage in a listed transaction affirmatively). You will also need to be prepared to defend the value of the easement.

As a general matter, it’s always fraught to look for a magic bullet on the tax side. At a minimum, consult competent counsel on something like this. Never rely on a promoter and never take tax advice from someone who had something to gain from your proceeding with a transaction.
I was told the audit will be at the partnership level and not on my personal return right? I am trying to find a legitimate fund and am open to recommendations
Who told you this? The guy running the partnership? :greedy

If charitable donations are your thing, consider using a donor-advised fund.
Last edited by Raymond on Thu Apr 30, 2020 9:22 pm, edited 1 time in total.
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mass_biker
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mass_biker »

As someone who has had earnings/investment windfalls along the way...and tax liabilities to go with them, we have

1) set up a DAF to help manage the tax liability quickly/effectively (highly recommended!)
2) leverage the DAF to give material amounts to our causes to max out matches from corporate sponsors etc. (makes it super easy)
3) use the DAF to educate our kids on how to give back (a longer term project)

I had a mentor in the investment business - way back when - who told me that when "good things happen" - and let's admit it - it's usually a case of being lucky vs. being really, really smart:

Look at the gains and take a 1/3d or a 1/2 off the table and determine if it's:

1) yours to reduce your basis (i.e. now playing with the house's money)
2) yours for a rainy day (i.e. reload)
3) yours to pay it forward (i.e. the stuff that makes you feel good/just good to do)

Not everyone's situation is the same - dependents, communities, liabilities etc. So one size truly does not fit all.

But if there is a way to mitigate the tax bill and help someone - with some of the good fortune - well, now is a pretty good time to set that infrastructure up...even if you don't utilize the gift giving out of the gates. Goodness knows, the needs are only going to increase.

Just a thought.

m_b
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MP123
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by MP123 »

Afty wrote: Thu Apr 30, 2020 9:12 pm This link from the IRS seems relevant: https://www.irs.gov/charities-non-profi ... -easements
Thanks for getting the rest of us up to speed on this scheme!

This sounds like a very bad idea, just pay the taxes due.
Dockpp
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by Dockpp »

Look up QOZ.
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mask107
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mask107 »

mass_biker wrote: Thu Apr 30, 2020 9:19 pm As someone who has had earnings/investment windfalls along the way...and tax liabilities to go with them, we have

1) set up a DAF to help manage the tax liability quickly/effectively (highly recommended!)
2) leverage the DAF to give material amounts to our causes to max out matches from corporate sponsors etc. (makes it super easy)
3) use the DAF to educate our kids on how to give back (a longer term project)

I had a mentor in the investment business - way back when - who told me that when "good things happen" - and let's admit it - it's usually a case of being lucky vs. being really, really smart:

Look at the gains and take a 1/3d or a 1/2 off the table and determine if it's:

1) yours to reduce your basis (i.e. now playing with the house's money)
2) yours for a rainy day (i.e. reload)
3) yours to pay it forward (i.e. the stuff that makes you feel good/just good to do)

Not everyone's situation is the same - dependents, communities, liabilities etc. So one size truly does not fit all.

But if there is a way to mitigate the tax bill and help someone - with some of the good fortune - well, now is a pretty good time to set that infrastructure up...even if you don't utilize the gift giving out of the gates. Goodness knows, the needs are only going to increase.

Just a thought.

m_b
What is a DAF? Thanks!
Last edited by mask107 on Mon May 18, 2020 7:47 pm, edited 1 time in total.
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mask107
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mask107 »

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Last edited by mask107 on Mon May 18, 2020 7:48 pm, edited 1 time in total.
Topic Author
mask107
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mask107 »

MP123 wrote: Thu Apr 30, 2020 9:22 pm
Afty wrote: Thu Apr 30, 2020 9:12 pm This link from the IRS seems relevant: https://www.irs.gov/charities-non-profi ... -easements
Thanks for getting the rest of us up to speed on this scheme!

This sounds like a very bad idea, just pay the taxes due.
Yep will just pay the taxes
Last edited by mask107 on Mon May 18, 2020 7:48 pm, edited 1 time in total.
simas
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by simas »

mask107 wrote: Thu Apr 30, 2020 9:30 pm
What is a DAF? Thanks! I have also been looking into opportunity zone projects
Look up Donor Advised Fund - DAF . you contribute money now, write it as charitable donation (which it is) and then get to donate it to qualified charities (based on causes you support) over time. probably your best bet of staying away from shady ways to screw yourself.
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mask107
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mask107 »

simas wrote: Thu Apr 30, 2020 9:58 pm
mask107 wrote: Thu Apr 30, 2020 9:30 pm
What is a DAF? Thanks! I have also been looking into opportunity zone projects
Look up Donor Advised Fund - DAF . you contribute money now, write it as charitable donation (which it is) and then get to donate it to qualified charities (based on causes you support) over time. probably your best bet of staying away from shady ways to screw yourself.
Last edited by mask107 on Mon May 18, 2020 7:48 pm, edited 1 time in total.
MarkNYC
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by MarkNYC »

mask107 wrote: Thu Apr 30, 2020 9:33 pm
MP123 wrote: Thu Apr 30, 2020 9:22 pm
Afty wrote: Thu Apr 30, 2020 9:12 pm This link from the IRS seems relevant: https://www.irs.gov/charities-non-profi ... -easements
Thanks for getting the rest of us up to speed on this scheme!

This sounds like a very bad idea, just pay the taxes due.
In the worst case scenario of an audit, they told me they are insured and that it is an audit at the partnership level and not the individual level so does that make things better? They said they were insured by Lloyds of London. I am completely new to this however so thank you for your input. I'll think it over for sure
Conservation easements are near the top of the list of IRS audit targets. The current IRS commissioner has stated publicly that the IRS will go after everyone involved in "these abusive transactions", including individual investors, and impose all available civil penalties where appropriate. Those penalties can be significant. I suggest you google "conservation easements IRS" and do some reading before getting involved.
simas
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by simas »

mask107 wrote: Thu Apr 30, 2020 10:00 pm
simas wrote: Thu Apr 30, 2020 9:58 pm
mask107 wrote: Thu Apr 30, 2020 9:30 pm
What is a DAF? Thanks! I have also been looking into opportunity zone projects
Look up Donor Advised Fund - DAF . you contribute money now, write it as charitable donation (which it is) and then get to donate it to qualified charities (based on causes you support) over time. probably your best bet of staying away from shady ways to screw yourself.
Is that a 1:1 ratio? Like it is more of a good deed right than for saving on taxes right? I got lucky this year with income and before this I was broke. I am still unemployed so I want to retain as much of the income this year as possible
Just be careful. With this attitude you are a huge target of very questionable (and likely outright illegal) sales target. very fat, very inexperienced, and eager to dive deeper - perfect score.

at least read what soxfan wrote above. no, there are no magic bullets here. you can pay taxes and move on. you can donate to charity and write it off. anything else you do (regardless of what you would here) comes with A LOT of due diligence , very expensive advice (and most likely is not worth it in the end). You are trying to outwit/outcheat (or join such outwitters/outcheaters) the very organization that writes the rules and has people on payroll , permanently, to catch special transactions like these. really, don't be stupid with your money.

If I were you, I would separate the tax due in my head (not my money to begin with), get a real CPA to help you (don't you owe estimated taxes? ), and make plan on how to move on with your life now you have great foundation to do it from. there is a lot more to it than tax avoidance/tax evasion. don't be stupid.

*not a CPA*
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mask107
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mask107 »

simas wrote: Thu Apr 30, 2020 10:12 pm
mask107 wrote: Thu Apr 30, 2020 10:00 pm
simas wrote: Thu Apr 30, 2020 9:58 pm
mask107 wrote: Thu Apr 30, 2020 9:30 pm
What is a DAF? Thanks! I have also been looking into opportunity zone projects
Look up Donor Advised Fund - DAF . you contribute money now, write it as charitable donation (which it is) and then get to donate it to qualified charities (based on causes you support) over time. probably your best bet of staying away from shady ways to screw yourself.
Is that a 1:1 ratio? Like it is more of a good deed right than for saving on taxes right? I got lucky this year with income and before this I was broke. I am still unemployed so I want to retain as much of the income this year as possible
Just be careful. With this attitude you are a huge target of very questionable (and likely outright illegal) sales target. very fat, very inexperienced, and eager to dive deeper - perfect score.

at least read what soxfan wrote above. no, there are no magic bullets here. you can pay taxes and move on. you can donate to charity and write it off. anything else you do (regardless of what you would here) comes with A LOT of due diligence , very expensive advice (and most likely is not worth it in the end). You are trying to outwit/outcheat (or join such outwitters/outcheaters) the very organization that writes the rules and has people on payroll , permanently, to catch special transactions like these. really, don't be stupid with your money.

If I were you, I would separate the tax due in my head (not my money to begin with), get a real CPA to help you (don't you owe estimated taxes? ), and make plan on how to move on with your life now you have great foundation to do it from. there is a lot more to it than tax avoidance/tax evasion. don't be stupid.

*not a CPA*

I wasn't trying to evade. Just trying to save as much as I can legally. Bogleheads has a lot of financially savvy people so I thought someone has gone through the same situation I have
mikefixac
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mikefixac »

Wow, I'd just put as much as I could in a Roth. Then do all the trading you want and pay no taxes.
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David Jay
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by David Jay »

mask107 wrote: Thu Apr 30, 2020 10:30 pmI wasn't trying to evade. Just trying to save as much as I can legally. Bogleheads has a lot of financially savvy people so I thought someone has gone through the same situation I have.
They have. That is why they are saying that if you receive more than a dollar of tax deduction from a dollar of donation, it is almost certain that the IRS will be very interested.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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mask107
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mask107 »

Seems like the consensus is negative against easements, so I will not be doing it
Last edited by mask107 on Mon May 18, 2020 7:49 pm, edited 1 time in total.
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mask107
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mask107 »

mikefixac wrote: Thu Apr 30, 2020 10:41 pm Wow, I'd just put as much as I could in a Roth. Then do all the trading you want and pay no taxes.
Losses are not deductible
Last edited by mask107 on Mon May 18, 2020 7:50 pm, edited 1 time in total.
bikesandbeers
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by bikesandbeers »

Yep, get a good CPA.
The conservation easement investment is shady, opperuntity zones might not be much better. I wonder if there is some real business investment like in a farm, where you could buy a bunch of equipment and then take accelerated depreciation?
2020 ButClassic
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by 2020 ButClassic »

I second the idea of buying high risk, high reward stocks, at least as a partial remedy. And perhaps buy more than one.

If you get lucky, hold on to the gains for future. If the risky investments don't pan out, sell but recoup part of the loss by TLH.

And, if it all goes down, then well, you tried.
EddyB
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by EddyB »

Buy a property with massive depreciation (e.g., lots of bonus depreciation that’s accelerated under the 2017 tax act), become a real estate professional, and the offset the depreciation against your capital gains?
Topic Author
mask107
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mask107 »

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Last edited by mask107 on Mon May 18, 2020 7:50 pm, edited 1 time in total.
EddyB
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by EddyB »

mask107 wrote: Thu Apr 30, 2020 11:10 pm
EddyB wrote: Thu Apr 30, 2020 11:07 pm Buy a property with massive depreciation (e.g., lots of bonus depreciation that’s accelerated under the 2017 tax act), become a real estate professional, and the offset the depreciation against your capital gains?
This is a completely new idea to me. Is this worthwhile or is it spend $1 to save .50 cents type of thing? I was thinking about starting a business maybe
I’m not advocating it, but a leveraged purchase could let you kick the can pretty far.
bikesandbeers
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by bikesandbeers »

mask107 wrote: Thu Apr 30, 2020 11:10 pm
EddyB wrote: Thu Apr 30, 2020 11:07 pm Buy a property with massive depreciation (e.g., lots of bonus depreciation that’s accelerated under the 2017 tax act), become a real estate professional, and the offset the depreciation against your capital gains?
This is a completely new idea to me. Is this worthwhile or is it spend $1 to save .50 cents type of thing? I was thinking about starting a business maybe
It is unlikely in my opinion that you can find something that let's you spend $1 and save more than. $1 on taxes this year. However buying an investment property or business let's you take accelerated depreciation this year, and hopeful becomes an ongoing stream of income in future years. But this is not a set and forget investment.
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JonnyDVM
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by JonnyDVM »

mask107 wrote: Thu Apr 30, 2020 10:30 pm
simas wrote: Thu Apr 30, 2020 10:12 pm
mask107 wrote: Thu Apr 30, 2020 10:00 pm
simas wrote: Thu Apr 30, 2020 9:58 pm
mask107 wrote: Thu Apr 30, 2020 9:30 pm
What is a DAF? Thanks! I have also been looking into opportunity zone projects
Look up Donor Advised Fund - DAF . you contribute money now, write it as charitable donation (which it is) and then get to donate it to qualified charities (based on causes you support) over time. probably your best bet of staying away from shady ways to screw yourself.
Is that a 1:1 ratio? Like it is more of a good deed right than for saving on taxes right? I got lucky this year with income and before this I was broke. I am still unemployed so I want to retain as much of the income this year as possible
Just be careful. With this attitude you are a huge target of very questionable (and likely outright illegal) sales target. very fat, very inexperienced, and eager to dive deeper - perfect score.

at least read what soxfan wrote above. no, there are no magic bullets here. you can pay taxes and move on. you can donate to charity and write it off. anything else you do (regardless of what you would here) comes with A LOT of due diligence , very expensive advice (and most likely is not worth it in the end). You are trying to outwit/outcheat (or join such outwitters/outcheaters) the very organization that writes the rules and has people on payroll , permanently, to catch special transactions like these. really, don't be stupid with your money.

If I were you, I would separate the tax due in my head (not my money to begin with), get a real CPA to help you (don't you owe estimated taxes? ), and make plan on how to move on with your life now you have great foundation to do it from. there is a lot more to it than tax avoidance/tax evasion. don't be stupid.

*not a CPA*

I wasn't trying to evade. Just trying to save as much as I can legally. Bogleheads has a lot of financially savvy people so I thought someone has gone through the same situation I have
The way it’s done to save taxes is not legal. It’s about as shady a tax reduction scheme as exists. Plus, it really bothers me that anyone would abuse a clause that was designed for the legitimate conservation of natural lands.

I do know several uhhhhh, shall we say friends of friends, that I’m told have done easements for years with no negative repercussions. As well as *ahem* certain higher ups in the federal government. So the idea that all of this is going to come crashing down on the participants is most likely a pipe dream. I consider myself relatively tax aggressive, and I wouldn’t touch those things with a 10 foot pole. Do they work? Yes. Are the legitimate? In my eyes a strong no.

The people in this forum are by and large quite ethical. If you want to play dubious tax games you’re in the wrong place.
I’d trade it all for a little more | -C Montgomery Burns
soxfan10
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by soxfan10 »

bikesandbeers wrote: Fri May 01, 2020 5:35 am
mask107 wrote: Thu Apr 30, 2020 11:10 pm
EddyB wrote: Thu Apr 30, 2020 11:07 pm Buy a property with massive depreciation (e.g., lots of bonus depreciation that’s accelerated under the 2017 tax act), become a real estate professional, and the offset the depreciation against your capital gains?
This is a completely new idea to me. Is this worthwhile or is it spend $1 to save .50 cents type of thing? I was thinking about starting a business maybe
It is unlikely in my opinion that you can find something that let's you spend $1 and save more than. $1 on taxes this year. However buying an investment property or business let's you take accelerated depreciation this year, and hopeful becomes an ongoing stream of income in future years. But this is not a set and forget investment.
It’s not unlikely, its impossible unless you’re participating in one of the following: (i) tax shelter; (ii) a listed transaction; or (iii) both. You cant get more deductions than the value that you provide.

The thing that comes closest to this that is legitimate is donating appreciated stock to charity where you can get deductions equal to fair market value rather than tax basis. That still will not provide more cash after tax to the taxpayer.

OP - I strongly suggest you recognize that you will have $800k of income eventually. What you should be looking for, if you are truly interested in cutting your tax bill, is a deferral strategy that will help smooth the income out. There are plenty of legitimate strategies that do that and should be able to smooth it out enough to drop the income into lower tax brackets. This usually takes the form of partnerships that invest in real estate or other depreciable assets. The income will eventually be taxed, as long as the underlying assets perform and you lose the money, but spreading the $800k out over 5-8 years should help on your rate significantly.
simas
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by simas »

mask107 wrote: Thu Apr 30, 2020 10:30 pm
simas wrote: Thu Apr 30, 2020 10:12 pm
mask107 wrote: Thu Apr 30, 2020 10:00 pm
simas wrote: Thu Apr 30, 2020 9:58 pm
mask107 wrote: Thu Apr 30, 2020 9:30 pm
What is a DAF? Thanks! I have also been looking into opportunity zone projects
Look up Donor Advised Fund - DAF . you contribute money now, write it as charitable donation (which it is) and then get to donate it to qualified charities (based on causes you support) over time. probably your best bet of staying away from shady ways to screw yourself.
Is that a 1:1 ratio? Like it is more of a good deed right than for saving on taxes right? I got lucky this year with income and before this I was broke. I am still unemployed so I want to retain as much of the income this year as possible
Just be careful. With this attitude you are a huge target of very questionable (and likely outright illegal) sales target. very fat, very inexperienced, and eager to dive deeper - perfect score.

at least read what soxfan wrote above. no, there are no magic bullets here. you can pay taxes and move on. you can donate to charity and write it off. anything else you do (regardless of what you would here) comes with A LOT of due diligence , very expensive advice (and most likely is not worth it in the end). You are trying to outwit/outcheat (or join such outwitters/outcheaters) the very organization that writes the rules and has people on payroll , permanently, to catch special transactions like these. really, don't be stupid with your money.

If I were you, I would separate the tax due in my head (not my money to begin with), get a real CPA to help you (don't you owe estimated taxes? ), and make plan on how to move on with your life now you have great foundation to do it from. there is a lot more to it than tax avoidance/tax evasion. don't be stupid.

*not a CPA*

I wasn't trying to evade. Just trying to save as much as I can legally. Bogleheads has a lot of financially savvy people so I thought someone has gone through the same situation I have
yes, they have . and they have set up donor advised funds or contributed to charity as some of those options. there is pretty good post writing up DAF choices/options. anything else (and especially in situations where someone tells you that they get you >100% tax deduction per dollar of contribution) may get you financially hurt and be liable when it fails.

you won something in casino of life. cash the chips, pay the uncle Sam (which you would do when you some something gambling) and move on.
EddyB
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by EddyB »

soxfan10 wrote: Fri May 01, 2020 7:08 am
bikesandbeers wrote: Fri May 01, 2020 5:35 am
mask107 wrote: Thu Apr 30, 2020 11:10 pm
EddyB wrote: Thu Apr 30, 2020 11:07 pm Buy a property with massive depreciation (e.g., lots of bonus depreciation that’s accelerated under the 2017 tax act), become a real estate professional, and the offset the depreciation against your capital gains?
This is a completely new idea to me. Is this worthwhile or is it spend $1 to save .50 cents type of thing? I was thinking about starting a business maybe
It is unlikely in my opinion that you can find something that let's you spend $1 and save more than. $1 on taxes this year. However buying an investment property or business let's you take accelerated depreciation this year, and hopeful becomes an ongoing stream of income in future years. But this is not a set and forget investment.
It’s not unlikely, its impossible unless you’re participating in one of the following: (i) tax shelter; (ii) a listed transaction; or (iii) both. You cant get more deductions than the value that you provide.

The thing that comes closest to this that is legitimate is donating appreciated stock to charity where you can get deductions equal to fair market value rather than tax basis. That still will not provide more cash after tax to the taxpayer.

OP - I strongly suggest you recognize that you will have $800k of income eventually. What you should be looking for, if you are truly interested in cutting your tax bill, is a deferral strategy that will help smooth the income out. There are plenty of legitimate strategies that do that and should be able to smooth it out enough to drop the income into lower tax brackets. This usually takes the form of partnerships that invest in real estate or other depreciable assets. The income will eventually be taxed, as long as the underlying assets perform and you lose the money, but spreading the $800k out over 5-8 years should help on your rate significantly.
But with a leveraged purchase OP could “spend” more this year than what he comes out of pocket this year. I agree that ultimately it’s likely to be a deferral strategy, but the partnerships you’re describing are just middlemen to the same use of offsetting depreciation against income, except that they’re less likely to justify the OP in becoming a (tax) real estate professional, and so less likely to let him offset any significant amount of capital gains.

Edit to add: Again, I’m not advocating this, just throwing it out there as a legitimate tax technique, even if a financially inadvisable one. But OP had been unemployed and might want to leverage his $800,000 gain into a $4,000,000 multi-unit rental that he then supervises....
achillesheel
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by achillesheel »

OP: It's tough because you already realized the gain, so (in my understanding) contributing to a DAF won't eliminate the tax due even on the gain you donate. Obviously if the donation is big enough (i.e. over the standard deduction) it can be deducted from your overall taxable income. Bogleheads, is that right?

My advice is largely emotional/mental: don't view all the money as yours. View 37% of it as uncle Sam's (plus NIIT). Then, on the margins, you can work out a legitimate strategy to defer/spread out those earnings over the next few years. The simplest course: Contribute a chunk to a DAF, invest the rest in a mix of index funds and big bets, and TLH like a crazy person if the market goes down. Make your estimated tax payments. Then, sleep well at night. The trade-off here is between saving money and living peacefully. Gotta pick one. You've got a "good problem."
Topic Author
mask107
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Joined: Thu Apr 13, 2017 5:54 pm

Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mask107 »

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Last edited by mask107 on Mon May 18, 2020 7:51 pm, edited 1 time in total.
soxfan10
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Joined: Wed Jan 21, 2015 10:38 pm

Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by soxfan10 »

EddyB wrote: Fri May 01, 2020 9:02 am
soxfan10 wrote: Fri May 01, 2020 7:08 am
bikesandbeers wrote: Fri May 01, 2020 5:35 am
mask107 wrote: Thu Apr 30, 2020 11:10 pm
EddyB wrote: Thu Apr 30, 2020 11:07 pm Buy a property with massive depreciation (e.g., lots of bonus depreciation that’s accelerated under the 2017 tax act), become a real estate professional, and the offset the depreciation against your capital gains?
This is a completely new idea to me. Is this worthwhile or is it spend $1 to save .50 cents type of thing? I was thinking about starting a business maybe
It is unlikely in my opinion that you can find something that let's you spend $1 and save more than. $1 on taxes this year. However buying an investment property or business let's you take accelerated depreciation this year, and hopeful becomes an ongoing stream of income in future years. But this is not a set and forget investment.
It’s not unlikely, its impossible unless you’re participating in one of the following: (i) tax shelter; (ii) a listed transaction; or (iii) both. You cant get more deductions than the value that you provide.

The thing that comes closest to this that is legitimate is donating appreciated stock to charity where you can get deductions equal to fair market value rather than tax basis. That still will not provide more cash after tax to the taxpayer.

OP - I strongly suggest you recognize that you will have $800k of income eventually. What you should be looking for, if you are truly interested in cutting your tax bill, is a deferral strategy that will help smooth the income out. There are plenty of legitimate strategies that do that and should be able to smooth it out enough to drop the income into lower tax brackets. This usually takes the form of partnerships that invest in real estate or other depreciable assets. The income will eventually be taxed, as long as the underlying assets perform and you lose the money, but spreading the $800k out over 5-8 years should help on your rate significantly.
But with a leveraged purchase OP could “spend” more this year than what he comes out of pocket this year. I agree that ultimately it’s likely to be a deferral strategy, but the partnerships you’re describing are just middlemen to the same use of offsetting depreciation against income, except that they’re less likely to justify the OP in becoming a (tax) real estate professional, and so less likely to let him offset any significant amount of capital gains.

Edit to add: Again, I’m not advocating this, just throwing it out there as a legitimate tax technique, even if a financially inadvisable one. But OP had been unemployed and might want to leverage his $800,000 gain into a $4,000,000 multi-unit rental that he then supervises....
Fair enough, the year 1 loss could in fact be more than $800k taking into account leverage if you are investing in assets that qualify for expensing. The only way it is not just a deferral strategy is the independent economics of the new investment he is making (i.e., there is an actual economic loss in the investment) or I suppose if he never exits the partnership until he dies.
Topic Author
mask107
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by mask107 »

bikesandbeers wrote: Thu Apr 30, 2020 10:53 pm Yep, get a good CPA.
The conservation easement investment is shady, opperuntity zones might not be much better. I wonder if there is some real business investment like in a farm, where you could buy a bunch of equipment and then take accelerated depreciation?
I have decided not to do CE
Last edited by mask107 on Mon May 18, 2020 7:51 pm, edited 1 time in total.
EddyB
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by EddyB »

mask107 wrote: Fri May 01, 2020 10:03 pm
bikesandbeers wrote: Thu Apr 30, 2020 10:53 pm Yep, get a good CPA.
The conservation easement investment is shady, opperuntity zones might not be much better. I wonder if there is some real business investment like in a farm, where you could buy a bunch of equipment and then take accelerated depreciation?
I have decided not to do CE. But accelerated depreciation I was pitched a fund where I invest in atm machines at 104k per fund and it pays passive income over 7 years or so or gas and oil drilling equipment. Does this sound legit? I could definitely use passive income since I am unemployed and the future is uncertain
No
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Raymond
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by Raymond »

OP, who is pitching all these schemes to you?

I understand that you want to minimize your taxes, but with all these ideas, you're likely to end up losing more money than you would have paid to the IRS.

Plus the added "benefits" of either getting ripped off, making your financial life way more complicated, or getting into legal hot water, take your pick (or even combine them.)
"Ritter, Tod und Teufel"
Starfish
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by Starfish »

simas wrote: Thu Apr 30, 2020 9:58 pm
mask107 wrote: Thu Apr 30, 2020 9:30 pm
What is a DAF? Thanks! I have also been looking into opportunity zone projects
Look up Donor Advised Fund - DAF . you contribute money now, write it as charitable donation (which it is) and then get to donate it to qualified charities (based on causes you support) over time. probably your best bet of staying away from shady ways to screw yourself.
Am I missing something or your suggestion for him is to save 50% by giving away 100%?

OP, I think you are few years late in conservation easement. From what I know they worked until IRS caught up, several years ago.
clown
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by clown »

To recast and answer the question I asked in Post #2 of this thread -- You generated an $800K short term capital gain, and are now looking for legit ways to minimize the tax. The tax is not $800K but more like $300K, depending on your state of residence, so you have about $500K free and clear. This sounds like a great problem to have. A $500K nest egg to invest for decades until your retirement. Be thankful for your windfall. Many people would be glad to have your problem. Pay the tax man and move on. Ignore the pitches -- their "deals" are better for the sales reps than for you. Those deals are made to be sold, not bought.

Depending on how the corona thing works out, and whether there is a second wave, and whether the market goes down again, you may have a chance to tax-loss-harvest and use those losses to offset some of your $800K realized short term capital gain. Assuming, of course, that the gain was generated in 2020.
1130Super
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Location: Minnesota

Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by 1130Super »

Could you rent a home and move for 6 months +1day in a no tax state?
Flora
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Re: Trying to lower $800k tax on short term capital gains. Do conservation easements work?

Post by Flora »

It does not work to change state residency after the capital gain transactions occurred.
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