• Skip to primary navigation
  • Skip to main content
(866) 867-8633
  • Partner Login
  • Request a Consultation
Reef Point LLC Logo

Reef Point, LLC

Deferring Recoginition of Capital Gains

  • DST Explained
    • Exit Strategy
    • 1031 Exchange Alternative
    • 1031 Exchange Rescue
    • Guidelines for a DST to Qualify
    • Standard DST & DST Plus
  • Meet the Team
    • Meet Greg Reese
  • Resources
    • Blog
    • FAQ
    • Case Studies
    • Videos
    • Webinars
  • Partner Center
    • Attorneys
    • Business Brokers
    • CPAs
    • Financial & Investment Advisors
    • Mergers and Acquisitions Professionals
    • Real Estate Professionals
    • Partner Portal
  • Contact Us
  • Partner Login
  • Request a Consultation OLD
  • Show Search
Hide Search

4 Reasons Why Ordinary People Should Defer Capital Gains Taxes

Reef Point LLC · August 20, 2020 ·

Actually, there is only one reason why anyone should defer capital gains taxes: more money.

Capital gains taxes often reduce profits by 40% or more. Finding ways to defer taxes and invest the excess is one of the ways that the 1% continues to build astronomical wealth.

However, no matter your income status, you are wise to consider smart tax strategies whenever you realize a substantial financial gain. You may sell a highly profitable home or business or receive a significant asset windfall such as an inheritance. If you stand to earn $250,000 or more, establishing a deferred sales trust can sidestep the capital gains tax bill for anywhere from a year to indefinitely.

And now you are the one with more money.

Theory Behind a Deferred Sales Trust

Without going into too much detail, a deferred sales trust (DST) is a tax strategy in which you bypass the capital gain from an asset sale by not owning the proceeds. When you are ready to sell an asset, you transfer its ownership to the DST instead of making the transaction with the buyer. The trustee will complete the sale and deposit the profit, or principal, into a bank account or investment portfolio owned by the trust.

You do not owe any capital gains taxes until you begin to receive installments of the principal per your pre-negotiated trust agreement. Yet, the real benefit lies in that any payment of dividends or interest earned on the principal qualifies as income, not a capital gain. You will owe taxes but at the much lower income tax rate.

To put a number on it, let us assume that your sale will profit you $250,000, which you use to fund a DST. (There is a one-time fee due at inception that we will disregard for now.) Your trustee invests 100% of the principal for an average return of 6%. Each year, you receive all interest and dividends as a distribution, leaving the $250,000 principal untouched. After the annual maintenance costs and income tax payment, your yearly income increase could average $9,025. The real benefit of a DST is to use the dollars you otherwise would have paid in taxes in order to deliver a higher amount of income or to continue generating wealth more rapidly. Secondly, by withdrawing your proceeds in installments, you usually end up paying taxes in significantly lower tax brackets.

Reasons Why You Should Establish a DST

Now that you have safely tucked your capital gain away and have it working for you, here are four practical reasons why you should be proud of your decision.

1. You Can Finally Get Out of Debt

Debt is a burden that most people do not even fully appreciate until it is gone. Imagine how much better you will sleep when you are not dreading years of minimum payments you can barely afford. Focus on the high-interest balances first, and work your way down to loans with lower rates, such as car payments and mortgages.

2. You Can Rest Easy with Flush Savings

There is nothing quite like the added security of knowing you can afford a medical emergency, retirement, vacations and holiday gifts without using credit cards. Begin with an emergency fund of $1,000 up to 6 months of living costs. After that, max out your employer and personal retirement contributions. Start a stash for the fun stuff with the excess.

3. You Can Feel Great by Giving Back

A 2017 study shows a direct correlation between philanthropy and overall contentment. Now that you have an influx of cash, pay it forward by increasing your donations to your chosen organizations. You might be able to strengthen your sense of purpose by contributing to local efforts that see immediate results.

4. You Can Stop Worrying About Your Family’s Future

Every provider with financial dependents worries about how they will fare should a catastrophe leave them unable to maintain their accustomed standard of living. Your DST investment income could put you in a position to rework your estate plan. You will feel much better if you know that your family will have the means to move on without you.

Capital Gains, Deferred Sales Trust Capital Gains, Capital Gains Taxes, Deferred Sales Trust, DST, Tax Strategy

Welcome

Reef Point LLC was founded by Gregory H. Reese who is one of only 13 Trustees in the US for Deferred Sales Trusts.

Quick Links

  • DST Explained
  • Partner Center
  • Case Studies
  • FAQ
  • Contact Us

Subscribe

Receive invitations to exclusive events, seminars occasional market news, updates, and opportunities from the Reef Point team.

This field is for validation purposes and should be left unchanged.

Contact

3525 Hyland Ave., Suite 145
Costa Mesa, CA 92626
714-581-5376
info@reefpointusa.com

  • Facebook
  • LinkedIn

As an authorized and approved Trustee for the Deferred Sales Trust and Member of the Estate Planning Team (EPT), Reef Point, LLC promotes the use of the Deferred Sales Trust™ or other estate planning techniques and is not responsible for recommendations made by other members of the Estate Planning Team, including the Deferred Sales Trust or other tax, legal or estate planning strategies.

© Copyright 2021 | Reef Point, LLC All Rights Reserved | Privacy Policy | Terms & Conditions

© 2023 Reef Point, LLC