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Appreciating Assets: 6 Ultimate Examples To Grow Your Wealth

As people start investing, building wealth and paying taxes they become more familiar with what the concept of appreciating assets and how important they are to building wealth. Unfortunately most people underestimate how critical they have been to building the wealth of most of the worlds largest fortunes. In this blog post we want to help people understand what are appreciating assets and why they are critical to building wealth.

What Is An Appreciating Asset?

Appreciating asset are used to describe an asset that has increased in value since it was acquired. It’s important to understand the concept of appreciation because it can have a major impact on your business’ bottom line.

An appreciated asset is a term also used in accounting to describe a assets that raised their value. For example, if you purchased a piece of land for $1,000,000 and the property is now worth $15,000,000 the land would be considered an appreciated asset. In this blog post, we will discuss the meaning of appreciated assets, why they matter, and the best appreciating assets examples to help illustrate the concept and how to categorize them.

Why does it matter?

It’s important to understand the concept of financial appreciation because it is the primary driver of wealth creation in capitalism. If you have appreciates in value, you can generate income by selling them for a profit.

Additionally, appreciated assets offer many favorable financial options ranging from a lower tax rate on the income generated from the sale, being used as collateral for loans to create liquidity without creating tax liability and offers many tax advantaged sales options that allow you to minimize or even avoid taxes on the sale of an appreciated asset.

A list of appreciating assets could be helpful!

Appreciating Assets: 6 Ultimate Examples

There are a variety of appreciating assets that can help you grow your wealth over time. Here are some examples:

1. Real estate

Usually consisting of land or buildings, that is used for residential or commercial purposes. Real estate investments can be a lucrative way to build wealth over time as the value of the property often increases. The typical annual growth rate is 3%.

2. Stocks

A type of security that represent an ownership stake in a publicly traded company. They are a low cost investment option for many. The typical annual growth rate is 10%.

3. Exchange Traded Funds (ETFs)

A type of security that represent an ownership stake in a basket of assets and offer diversification and appreciation at a low cost. The typical annual growth rate is 10%.

4. Commodities

An investment in physical commodities such as metals, energy or agricultural products. As the name states, these assets are commodities which means they are easily replaceable which usually limits their potential upside. Often these assets are commonly used in the world and have high tangible value but they can be hard to store and volatile.

5. Art

An investment in tangible pieces of art, such as paintings, sculptures and jewelry. These appreciated assets often have the least tangible value so the valuation is truly based on the value the buyer sees in the artwork meaning the assets are highly volatile and a small percentage of assets in the category tend to capture the majority of the appreciation.

6. Private Equity

Investing in funds that selectively invest in or buy private companies. The average annual growth rate is difficult to determine because it can vary so greatly. Typically, private equity investments have higher rates of return than public equity investments, but they also come with more risk.

appreciating assets

Tax Advantaged Sales Options For Appreciated Assets

  • Charitable Remainder Trusts (or CRTs): They are tax-exempt structures that allow you to defer the taxes you would otherwise pay when selling an asset and grow your asset tax free inside the trust. Plus, CRTs give you an immediate charitable income tax deduction.
  • Installment Sales: How this works is that you offer โ€œseller financingโ€ โ€” essentially, you offer the buyer an installment plan, and they pay you a down payment this year and then pay off the remainder of the sale price over time. Critically, with an installment sale, you only have to pay income taxes on the amount the buyer pays you in a given year. If the payments are spread out over a long period, you can reduce your marginal tax rate significantly.
  • Opportunity Zones: When you invest in Opportunity Zones with the capital gains from the sale of an appreciated asset property, you can take advantage of a number of tax benefits, including complete tax deferral until 2026, a tax rate reduction of between 10 and 15%, and full tax exemption on gains that happen within the Opportunity Zone investment.

There are a number of tax advantaged sales options for items that appreciate in value. Read more about these options here.

What is the most accessible and lowest cost investment?

There are a variety of investment classes that offer investors access to a variety of assets. Though the most accessible and lowest cost investment classes is usually considered:

  • ETFs: An ETF is a type of investment that allows investors to pool their money together and invest in a variety of assets, such as stocks, bonds or commodities. ETFs typically have lower fees than mutual funds and can offer investors exposure to a variety of assets.

How are appreciated assets categorized?

Things that appreciate in value are typically categorized as long-term or short-term. Long-term assets are those that have been held for more than one year. Short-term assets that appreciate are those that have been held for less than one year. The holding period is important because it determines the tax rate that will be applied to any gains made on the sale of the asset.

Long-term capital gains are taxed at a lower rate than short-term capital gains. For example, in the United States, long-term capital gains are currently taxed at a maximum rate of 20%. Short-term capital gains, on the other hand, are taxed at your ordinary income tax rate, which could be as high as 37%.

Conclusion

To summarize, appreciated assets are a key concept in accounting and can have a major impact on your business’ bottom line. By understanding what they are, why they matter and how to categorize them, you can make more informed decisions about how to generate income from your investments.

About Valur:

We have built a platform to give everyone access to the tax planning tools of the ultra-rich like Mark Zuckerburg (Facebook founder), Phil Knight (Nike founder) and others. Valur makes it simple and seamless for our customers to utilize the tax advantaged structures that are otherwise expensive and inaccessible to build their wealth more efficiently. From picking the best strategy to taking care of all the setup and ongoing overhead, we make take care of it and make it easy.