A land trust is a great way to own property while maintaining your anonymity. With a land trust, the ownership of the property is publicly listed under the name of the trust itself. A land trust has a designated trustee as well as at least one beneficiary.
With most land trusts, the property owner is the beneficiary. This allows them to maintain full control over the property. However, limited liability companies (LLCs), corporations, the trustee, and other trusts can also be listed as the beneficiary. In listing one of these other types of parties as the beneficiary, you increase your anonymity.
To determine whom you should have listed as the beneficiary, you might want to consider the tax implications.
IRC Section 121
The Internal Revenue Service (IRS) establishes regulations regarding taxes. These regulations, known as the Internal Revenue Code (IRC), apply to almost every financial situation in America. A review of IRC Section 121 makes it ideal for the property owner to list himself or herself as the beneficiary of a land trust. Why? Let us examine the code for a better understanding.
- IRC Section 121 is related to the exclusion of gains from the sale of a principal residence. For individuals, this is a $250,000 capital gains tax exclusion. (This jumps to $500,000 for married filers.)
- To qualify for the capital gains exclusion, ownership must be held in your name, in the name of a qualifying trust, or through specific single-owner entities.
- You have resided on the property for two of the five years prior to the sale of the real estate prior to the sale.
The Issue with Entities
A grantor trust, as defined by IRC 671-679, is considered a qualifying trust that can act as a beneficiary of a land trust. A revocable living trust is a qualifying trust as well. If you make an entity your beneficiary instead, you will likely have an issue qualifying under the IRC Section 121. (However, recent court rulings have begun to show promise relating to LLCs and asset protections.)
Let Royal Legal Solutions Help
At Royal Legal Solutions, we understand the intricacies of tax regulations. Our professionals have experience with all aspects of asset protection. This includes the establishment of trusts, LLCs, and other entities. Our experts are licensed to work throughout the United States as well as in Canada.
If you still have questions about IRC Section 121, feel free to ask in the comments section below. If you need specific advice, set up a consultation with Royal Legal Solutions today. Asset protection is not a do-it-yourself gig.
My name is Scott Smith. In addition to being an attorney, I’m a real estate investor myself. If you’re considering a land trust, let us help you protect your valuable investments with a foolproof asset protection strategy from people who’ve been around and seen it all. Take our financial freedom quiz and schedule a free consultation. We’ll help you make your investments bulletproof.