Estate Planning for Negative Capital

Clients with long term real estate holdings often have negative capital, which results from cashing out with refinancings and from depreciation.  The body of estate-planning literature contains few works that do justice to the central estate-planning considerations for holders of interests in real estate with negative capital — debt in excess of basis. Typically, the fact pattern arises when a taxpayer holds real estate long term, employing leverage that generates deductions and/or tax deferred proceeds on non-recourse financings. Ultimately, such property will have a low income tax basis relative to its market value and its nonrecourse encumbrances.

This article by Stephen M. Breitstone, co-head of Meltzer Lippe’s Wealth Preservation Group, originally published in Trusts & Estates, discusses these issues in detail, with particular attention paid to entity freeze partnerships, a particularly useful structure for transferring values out of estates without triggering inherent gain on negative capital assets.

You can read the complete text of this article by clicking the PDF icon below.

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