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Shared Appreciation Mortgage (SAM) / Shared Appreciation Loan (SAL):

USE - Asset Protection
Possible Income Tax Reduction
International Funding

By definition, a SAM or a SAL is a loan that is made at less than the current market interest rate in exchange for the entity that makes the loan receiving up to 50% of the growth in the appreciation of the property over the lifetime of the loan. In addition, pursuant to the loan documents the property may never be sold for less than fair market value. This terminology plus the equity participation causes any creditor real problems when trying to attack an asset that has a SAM or SAL lien. The interest payments on a properly drawn international SAM is deductible in the US and if structured properly there is no US withholding and no tax due in the international entity's domicile.

Because we are all interested in driving our expenses at our US income, and since under the terms of a SAM, interest is limited to below market rates we have developed a second technique. That idea is to use a SAM for a portion of the equity position and to place an additional mortgage/trust for the balance of the equity. The second mortgage or trust is at a high interest rate and qualifies as portfolio debt. Portfolio debt is deductible in the US, is not subject to Federal withholding and is received tax free in a tax haven country.

Having said that, we do need to point out that the use of a SAM (SAL) is not limited to international loans. A domestic entity can also issue either a SAM or SAL, however, the interest paid to the domestic entity would have to be realized by the issuing US entity for tax purposes.

The use of a shared appreciation loan can apply to any personal property that is appreciating.

Click here to view chart of Shared Appreciation Mortgage (SAM) / Shared Appreciation Loan (SAL).
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