1. Webinar August 29, 2007 “Major Changes in Auto Deduction Strategies”
Mathew N. Sorensen, J.D. and Jim Park, L.L.M., J.D.
“Incredible Tax Deferral Strategies for Selling
Your Business or Real Estate”
Theresa Fette-Warner, L.L.M., J.D. and Jason Helquist, L.L.M., J.D.
Cedar City ~ Las Vegas ~ Beverly Hills ~ Salt Lake City
Telephone / Facsimile
© Kyler Kohler & Ostermiller, LLP 2007

2. Instructor Notes
Disclaimer- Although the information contained in this Presentation may be extremely useful and helpful, please understand that the presentation of this information does not constitute an attorney-client relationship. Moreover, the information contained in this Presentation is for general guidance only. It is strongly recommended that each individual or entity obtain their own legal advice, particularly applied to their own set of circumstances, facts and specific situation. Kyler Kohler & Ostermiller, LLP is not responsible or liable for any advice that is taken and applied in a situation without direct consultation and representation specific to that individual’s or company’s needs.
© Kyler Kohler & Ostermiller, LLP 2007

3. Part I “Major Changes in Auto Deduction Strategies”
Mathew N. Sorensen, J.D. and Jim Park, L.L.M., J.D.

4. Maximize Vehicle expenses!! Auto –Mileage versus Actual
Actual - Own
Fuel, repairs, maintenance, etc..
Depreciation
Be aware of Depreciation limits
* unless 6000lb+ vehicle
then deduct up to $25,000
** CHANGES in **
- Still need to keep mileage records
Business
cents
Medical/Moving
2007 – 20 cents
Charitable
2007 – 14 cents
Personal and
Commuting Non-
Deductible
Don’t Forget Business % of
Interest on Auto Loan
*Always keep mileage records if there is personal use

5. Maximize Vehicle expenses!! Auto –Actual versus Lease
Actual - Own
Actual - Lease
Fuel, repairs, maintenance, etc..
Depreciation
Be aware of Depreciation limits
* unless 6000lb+ vehicle
then deduct up to $25,000
- Still need to keep mileage records
Same
Lease Payments
Be aware of Lease
add back schedule
Mileage limits &
residual value?
Amortize down
payment
Don’t Forget Business % of
Interest on Auto Loan
*Always keep mileage records if there is personal use

6. Hybrid Cars and Alternative
Motor Vehicles
The Energy Policy Act of 2005 replaced the clean-fuel burning deduction with a tax credit. A tax credit is subtracted directly from the total amount of federal tax owed, thus reducing or even eliminating the taxpayer’s tax obligation. The tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006.

7. Hybrid Cars and Alternative
Motor Vehicles
Model Year 2007
Chevrolet Silverado 2WD Hybrid Pickup Truck — $250
Chevrolet Silverado 4WD Hybrid Pickup Truck — $650
Ford Escape Hybrid 2WD — $2,600
Ford Escape Hybrid 4WD — $1,950
GMC Sierra 2WD Hybrid Pickup Truck — $250
GMC Sierra 4WD Hybrid Pickup Truck — $650
Honda Accord Hybrid AT —  $1,300
Honda Accord Hybrid Navi AT — $1,300
Honda Civic GX — $4,000 ††
Honda Civic Hybrid CVT — $2,100
Lexus GS 450h — $775†
Lexus RX 400h 2WD and 4WD — $1,100†
Mercury Mariner 4WD Hybrid — $1,950
Nissan Altima Hybrid — $2,350
Saturn Aura Hybrid — $1,300
Saturn Vue Green Line — $650
Toyota Camry Hybrid — $1,300†
Toyota Prius — $1,575†
Toyota Highlander Hybrid 2WD and 4WD — $1,300†
Model Year 2008
Ford Escape 2WD Hybrid Model Year 2008 — $3,000
Mercury Mariner 2WD Hybrid Model Year 2008 — $3,000
Ford Escape 4WD Hybrid Model Year 2008 — $2,200
Mercury Mariner 4WD Hybrid Model year 2008 — $2,200
† This reflects a decrease in the credit amount as of Oct. 1, 2006, due to the  manufacturers meeting quarterly sales of 60,000 qualified hybrid cars — See Quarterly Sales, below.
†† This credit amount does not phase out. The full amount of the alternative fuel vehicle credit would be available for vehicles purchased on or before December 31, 2010.  
See for Weekly updated information on Hybrid Sales and Credits

8. Hybrid Cars and Alternative
Motor Vehicles
Consumers seeking the credit may want to buy early since the full credit is only available for a limited time. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid or advance lean burn technology. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.
See for Weekly updated information on Hybrid Sales and Credits

9. Part II “Incredible Tax Deferral Strategies for Selling
Your Business or Real Estate”
Theresa Fette-Warner, L.L.M., J.D. and Jason Helquist, L.L.M., J.D.

10. 4 Strategies 1031 Exchanges Installment Sales
Charitable Remainder Trusts
Deferred Sales

11. The Transaction Taxpayer Seller Buyer Qualified Intermediary
Replacement
Property
Replacement
Property
Qualified
Intermediary
Taxpayer
Seller
Exchange
Property
Exchange $$
Buyer

12. 1031 Exchange Advantages Defer capital gains tax
Greater selling flexibility since prices won’t have to be inflated to cover capital gains
Acquiring a replacement property with greater income potential
Capability to consolidate hard to manage properties into one easy to manage property
Exchange out of a hard to finance property into one that is more easily financed

13. 1031 Exchange Disadvantages
Lower depreciation schedule when new properties are acquired as opposed to other deferral techniques
Losses on income tax return cannot be deducted if property is exchanged rather than sold
Unforgiving time requirements in the 45-day identification and 180-day exchange time periods
Limited access to the use of property’s equity

14. Installment Sales What are they?
A sale of property at a gain where at least one payment is to be received after the tax year in which the sale occurs
A person is required to report the sale on the installment method unless he/she “elects out” in the year of sale
If a person “elects out,” he/she must report all the gain as income in the year of the sale

15. Installment Sales Advantages
A person only includes in income each year only part of the gain he/she receives, which enables them to spread out the capital gain over the period of the contract
Installment sales tax qualification is automatic for persons who are not dealers
A seller may elect not to report an entire gain at once, which is beneficial if the seller wants to utilize capital losses occurring that year against gains

16. Installment Sales Disadvantages
A person cannot use the installment method to report gain from the sale of inventory or stocks and securities traded on an established securities market.
If interest is not charged or the interest rate is too low, the law states that there is a minimum amount of interest (AFR rates) a seller is considered to have received. This “imputed” or “unstated” interest is taxable.
Depreciation recapture must be paid in the year of sale.
Seller has an assumed economic and legal risk that the Buyer may not care for the property properly or carry adequate insurance.

17. Charitable Remainder Trust (The Mechanics)
Donor takes
tax deduction
over next 5 yrs
Third Party Buyer
Appreciated
Asset(s)
$$ Tax
Deduction
Trustee Sells
Asset(s) to Third Party
Step 2
Step 1
Step 3
Donor places
Assets in Trust $$
Individually to
Jim and Mary
Jones Family
Charitable Remainder Trust
Annuity
Irrevocable Life
Insurance Trust $
Trustee
Purchases Annuity
for Beneficiary
Donor:
Trustee:
Beneficiary:
Step 4
$$$
$$$
Donation to Charity
Trust Corpus
Jones Family

18. Charitable Remainder Trust
Pros
Cons
Save Tax on Appreciated Asset
Create Stream of Income
Donate to Charitable Entity
Receive Tax Deduction
Provide Cash for Wealth
Replacement Trust
Set-up Cost
Irrevocable
Difficult to operate business within
Grantor may not qualify for life
Insurance
Tax Reporting

19. Deferred Sales Strategy
What is it?
The Deferred Sales Strategy allows the seller to transfer an appreciated asset (e.g. real estate, business interests, stocks, etc.) and defer the capital gains tax over the course of their lifetime
The Deferred Sales Strategy is also a valuable estate planning tool, which is used by the seller to transfer the asset outside their taxable estate

20. Deferred Sales Strategy (The Mechanics)
Asset
CLIENT
Transfer Asset Interest
Obligation to Client
Deferred Sales Strategy
Sale of Property
Net Proceeds
BUYER

21. Deferred Sales Strategy
Advantages
Income Tax Savings - When appreciated property is sold, the seller defers recognition of gain until receipt of payments
Estate Tax Savings - Removes transferred property and all future appreciation from the estate without use of gift or estate tax exemptions
Estate Liquidity - Converts an illiquid asset into monthly payments
Probate Avoidance - Avoids probate
Asset Protection - A sell may place the transferred property beyond the reach of potential creditors and litigants if the transferor retains no interest in the transferred property

22. Deferred Sales Strategy
Disadvantages
Depreciation Recapture can not be deferred
More complicated tax structure than other strategies
Must adhere to the formalities imposed by Internal Revenue Service Regulations
Fees to structure are often higher than strategies such as the 1031 Exchange
Under IRS Regulations, the seller of the asset can not maintain control of the structure

23. For more information, please contact us at: KYLER, KOHLER & OSTERMILLER 856 South Sage Dr., Suite 2 Cedar City, Utah Tel: Fax:

24. For more information, please contact us at: KYLER KOHLER & OSTERMILLER, LLP Tel: Fax: