Smart Tax Planning: How Deconstruction Can Offset Incoming Capital Gains Tax Hikes

Successful Americans are gearing up for some possible significant tax increases, the largest since the 1920s. According to Reuters, the White House proposal details an almost doubling of taxes on capital gains to 39.6% for Americans earning more than $1 million. While this tax rate hike will likely be negotiated down as it goes through Congress, financial professionals advise their clients to start creating a strategy to minimize their tax liabilities and offset capital gains tax hikes.

How Deconstruction Can Provide Significant Tax Deductions

Many tax-savvy individuals know that donating property can provide a deduction. However, many wealthy Americans aren’t aware of just how much they can save through deconstruction. Depending on the project, investors can leverage their real estate renovations to provide tax savings of tens or hundreds of thousands of dollars. 

How to Secure Your Tax Deduction 

Deconstruction provides taxpayers with an additional deduction source without the individual bearing the brunt of the work. The first step is to contact an appraisal company, like Green Donation Consultants, who can lead the process and walk the individual or corporation through each step of deconstruction. You can also discuss deconstruction with your Certified Public Accountant or tax attorney to ensure you have considered all possible tax consequences and strategies.

After a free initial inspection, the appraisal team will connect you with a 501(c)3 non-profit organization that will schedule the deconstruction team and the material pick-up and distribution. They provide the qualified appraisers with an inventory list that will be thoroughly researched to determine the donation’s overall Fair Market Value. That information will be detailed in the qualified appraisal document. A qualified appraisal is required for any donation with a Fair Market Value greater than $5,000. You will include this with the required IRS Tax Form 8283 when submitting your tax return.

How Deconstruction Overcomes the Standard Deduction Hurdle

While taking the standard deduction is generally acceptable for most Americans, deconstruction provides the unique ability for taxpayers to overcome the standard deduction hurdle and permit itemization. The Tax Cut and Jobs Act (TCJA) capped many deductible expenses that were previously available. However, a charitable contribution together with the suspension on limitations and phase-out approach of itemized deductions provides wealthy Americans with an intelligent tax strategy if they can manage to overcome the standard deduction requirement. To determine if deconstruction can effectively utilize this tax-planning technique, talk to your trusted tax professional.

Why You Should Act Now

There has not been a timeline established regarding when the increase in capital gains tax should occur, but many experts expect it to happen later this year. It is crucial that those clients anticipating a change in their capital gains budget find ways to offset the increase now, rather than risking a potential last-minute late-year frenzy. 

If you would like to discuss how Green Donation Consultants can assist you through the donation process, contact our team today at 800-870-3965.