There are several ways to exploit the system and find loopholes in the tax regulations of the United States. These loopholes can be used by anyone, but those who have the money will be the ones to enjoy the full benefit of tax shelters.
The Christian Science Monitor has published an online article explaining their top three picks on how real estate is being used as tax shelter of the rich.
Invest in Rural Lands
If you have the money to spend, then why not go big? Buy a few acres of rural land. There are states in the United States that have "use-value assessment." This kind of assessment allows the land buyers to purchase the land in its market value and sell it as it is assessed in "use-value," as long as a few minor guidelines are met. The IRS provision was originally meant for farmers to hold on to their lands.
The Nation reported that Michael Dell qualified his $71.4 million 1,757-acre Texas ranch for the tax credit and brought its assessed value to $290,000.
1031 Exchange
The Section 1031 of the Internal Revenue Code is a provision that makes it possible for real estate investors to sell property, take a profit, and defer capital gains or losses, as long as the proceeds are re-invested in similar use property. This special tax treatment can only be received if the property is to be used for trade, business, or investment purposes. There is no imposed limit on how many number of 1031 Exchange an investor can take, that is why most investors use 1031 to build long-term tax-deferred wealth.
Dynasty Trust
Wealthy families often use a form of irrevocable trust that can create generational wealth. This irrevocable trust is called Dynasty Trust. Dynasty Trust, when properly formed, can exempt your descendants from estate, gift, and generation-skipping (GST) tax for the life of the trust.
