Alternatives to Paying Capital Gains Taxes on Sale of Real Estate or a Business

If you own appreciated investment real estate or a business that you want to sell, you may be hesitant to do so because of the capital gains tax exposure you face. The rate could be as high as 20% if your taxable income exceeds $501.600 and you’re a married taxpayer filing jointly.

With this and other factors impacting your decision to sell, what you need, now more than ever, are legal alternatives to paying long-term capital gains taxes. They do exist, and we here at Reef Point can help you establish a Deferred Sales Trust (DST) that meets your investment and tax goals.

Real Estate Sale Alternatives

If you’re considering selling investment real estate, you have three options for deferring capital gains taxes:

  1. 1031 exchange
  2. Opportunity zones
  3. Deferred Sales Trust

1031 Exchange

A 1031 exchange entails numerous qualifications and time restrictions, including the following:

  • You must exchange your real estate for “like kind” real estate.
  • You must find your replacement real estate within 45 days.
  • You must close on your replacement real estate within 180 days.
  • You may well find it difficult to find replacement property that allows you to not only trade up in overall value, but also in the amount of debt or mortgage you need to place on the replacement property.

Opportunity Zones

Numerous down sides also exist to investing in an opportunity zone, including the following:

  • You must invest in a blighted or economically depressed area, always a risky undertaking.
  • You can reduce your capital gains taxes by only 10% if you hold the property for five years or 15% if you hold it for seven years.
  • You can only avoid capital gains taxes on the opportunity zone investment if you hold the property for 10 years.
  • You must pay all capital gains taxes due on your sold property by 2026.

Deferred Sales Trust

A DST allows you to not only defer capital gains taxes on your real estate sale, but also to reallocate your full sales proceeds for income or other real estate or business investments.

Business Sale Alternatives

If you’re considering selling your business, again you have three options for deferring payment of your capital gains taxes:

  1. Direct seller financing
  2. Stock swap
  3. Deferred Sales Trust

Direct Seller Financing

You can finance the sale of your business yourself and receive payments from the buyer over a relatively long time period. While this defers your capital gains taxes, however, it also puts you at risk for the buyer defaulting.

Stock Swap

If you swap stock you hold in your company for stock in the acquiring company, you can defer capital gains tax exposure until you sell your stock in the acquiring company. This option works best if a public company acquires your business, and even here, it severely limits your diversification.

Deferred Sales Trust

A DST works just as well when you sell a business as it does when you sell real estate, giving you the same capital gains deferral and diversification advantages. In addition, the IRS, the Financial Industry Regulatory Authority and top tax law firms have reviewed DSTs. Never once has a DST received an adverse finding.

Want to Learn More?

For these and many other reasons, a DST may well be the real estate or business sale alternative you’re looking for. Contact us today at Reef Point to learn more about how we can help shield your profits from capital gains taxation.