Large Asset Purchase

Take some time to plan a large purchase so you can research and prepare for ongoing carrying costs, and determine how best to optimize the transaction.

  1. Potential Direct Financial Impact

    • Negotiated purchase price of the asset.
    • Lump sum cash payment or down payment if financing the purchase
    • Any upfront charges and ongoing monthly payments associated with financing.
    • Taxes, registration and titling fees
    • Ongoing costs of maintaining the asset (insurance, maintenance costs, taxes, etc)
    • Potential tax savings from any depreciation and/or capital improvements
  2. Potential Secondary Impacts

    • Reallocation of cash flow to accomodate new expenses related to purchase.
    • Lost growth opportunity on dollars used to to pay for purchase asset if low interest, or zero percent, financing was available
    • Expected return on investment for any planned improvements of the asset
    • Research rules around asset purchases by a private business
  3. Self Completion/Execution Risks

    • Missing an opportunity to optimize the purchase structure for tax efficiencies.
    • Not properly accounting for all the carrying costs and ongoing maintenance costs associated with it (ie. registration fees, insurance, etc.)
    • Not considering the ideal state/ place to register the asset (if applicable- boat, car, etc)
    • Exceeding the limits on the personal use of asset and losing the investment property status and tax benefits.
    • Not ensuring that a rental property will be cash flow positive after accounting for property management, maintenance costs and repairs.
  4. Situations where expertise adds the most value

    • Tax Adviser
      Working with a tax adviser to determine the most tax efficient manner to structure the transaction (ie. 1031 exchange) is highly recommended. Additionally, a tax adviser may be able to work with you to ensure you understand any personal use limitations on the asset (if applicable) and/or the considerations to keep in mind around making capital improvements and capturing depreciation.
    • Legal Adviser
      Consulting a trust and estate attorney can help protect and safeguard your new asset, especially if you intend to pass it on.
    • Financial Adviser
      Working with a financial adviser may be beneficial to help weigh the opportunity cost and tradeoffs between paying cash for the asset or financing it at a low interest rate. Additionally, a financial adviser may be able to incorporate the new asset into your financial statements, including revise your cash flow projections.

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