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Webinar Replay: Top Deferred Sales Trust FAQs Answered By Experts

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Webinar Replay: Top Deferred Sales Trust FAQs Answered By Experts

During this webinar, we answered key questions, including:

  • What exactly is a Deferred Sales Trust?
  • Can I use a DST for my primary residence sale?
  • Can I combine a 1031 Exchange with a DST?
  • How does allocation impact my business sale?
  • What if my business sale involves a seller carry back?
  • What is the role of the trustee in a DST?

If you have any questions or want to explore how a DST might apply to your situation, contact us to a schedule a consultation.

Webinar Date: March 27, 2025

Intrigued and Want to Know More?

If all of the above appeals to you and you want to find out more about the benefits of partnering with Reef Point, contact us today. Greg Reese will be happy to answer any questions you have, and also give you a free DST analysis.

Case Study: DST Saves New Jersey Couple $2,857,285 On Business Sale

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If you hold substantially appreciated assets, selling those assets can result in a hefty tax bill. Turning over a sizable proportion of the profits from the sale significantly reduces the benefits you gain from making a sound investment decision. However, you don’t necessarily need to take such a hit, at least not upfront.

It is possible to your defer capital gains tax. The right deferral strategies can help you control when you pay capital gains taxes and how much. You can further grow your wealth and you may even be able to reduce your capital gains taxes in the long run.

What Is a Capital Gains Tax?

The federal government considers nearly everything you own as a capital asset, meaning you can sell them for cash. If you sell an asset for more than its value when you purchase it, you make a profit, and the Internal Revenue Service counts this profit as additional income. However, some assets appreciate considerably, resulting in a substantial sum of money.

While buying and selling highly appreciated assets is an excellent wealth-building strategy, capital gains taxes reduce how much you walk away from a sale with, which can impact your current and future financial security. The IRS requires you to report the income you receive from selling your assets. Selling at a profit results in a capital gain, but how long you hold the asset matters.

Short-Term vs. Long-Term Capital Gains

The government classifies capital gains according to the length of time you had the asset in your possession before selling it. In most cases, holding an asset for a year or less leads to a short-term capital gain, while selling after a year is a long-term capital gain. The IRS taxes these two categories differently.

Short-term capital gains are subjected to a standard, graduated income tax rate. Long-term capital gains are taxed based on how much they impact your overall income. Your capital gains taxes could be between 0% and 28%, depending on your income. While most pay a 15% rate, selling collectibles or qualifying small business stock results in a 28% capital gains tax.

How Can You Defer Capital Gains Taxes?

If your taxable income is less than $41,675 for single filers or $83,350 for joint filers (in 2023), you won’t have to worry about deferring capital gains tax. However, if your taxable income exceeds these thresholds, you might consider implementing a deferral strategy. Your options depend on the type of asset you wish to sell. If you hold real estate, you have a little more flexibility than other holdings. However, a deferred sales trust is an option for any asset.

Real Estate Options

If you have a real estate investment that you wish to sell, you have two options that are not available with other asset classes: 1031 exchanges and qualified opportunity zone investments.

1031 Exchange

A 1031 exchange allows you to defer capital gains taxes when you purchase another property of the same kind. These like-kind “exchanges” must adhere to the following criteria:

  • You must identify a qualifying property within 45 days of selling your current property.
  • You must take possession of the qualifying property within 180 days of selling your existing property.
  • You must use a qualified intermediary to conduct the exchange. You cannot handle it yourself.

Though the 1031 exchange allows you to put off paying capital gains taxes, you will have to pay in total if you eventually sell the new property.

Qualified Opportunity Zone Investment

A QOZ investment allows you to use your profits from selling your current property to purchase another property in a qualifying economically distressed community. Not every economically distressed neighborhood carries a QOZ label. As with 1031 Exchange sales, you must meet specific criteria to defer capital gains taxes:

  • You must complete the new property purchase within 180 days of selling your current property.
  • The property exchange must be for equity interest rather than debt interest.
  • You must transfer the funds from the sale to the investment through a qualified opportunity fund.

Furthermore, the IRS adjusts the tax benefit based on how long you’ve held your current property before you sell it. The longer you own the property, the greater your tax benefit.

Using the QOZ strategy does not allow you to defer capital gains taxes indefinitely. You can only put off paying your taxes through the end of 2026. If you sell the new investment property sooner, you will owe capital gains taxes for the year you conduct the sale unless you utilize another capital gains deferment strategy.

An Alternative Option

Regardless of the asset class you wish to sell, a deferred sales trust allows you to defer paying your capital gains taxes. It also can prevent you from having to pay the entire tax upfront.

A  DST is a secured installment sale and a valid strategy for deferring capital gains taxes. A DST is a legally binding contract between you and a third party. You must use a DST trustee; thus, you cannot appoint yourself.

Before selling your current property, transfer it into the deferred sales trust. Once the sale is complete, the profits transfer directly into the trust. You receive installment payments from the trust and only pay capital gains taxes on installments you receive in any given tax year. You and the trustee negotiate how much you receive each month and when the pay will begin.

Who Can Help You Defer Capital Gains Taxes With a DST?

Reef Point’s sole purpose is to help people like you. We specialize in deferred sales trusts and know how to use them to defer capital gains taxes while growing your wealth and providing an additional income stream. If you’re interested in finding out whether a deferred sales trust is suitable for you, get in touch with our office today.

Sources:

https://www.irs.gov/taxtopics/tc409

https://www.irs.gov/credits-deductions/businesses/opportunity-zones

How Does a Deferred Sales Trust Work: Step-By-Step

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For business owners and investors looking to sell significant assets while managing tax implications, the Deferred Sales Trust (DST) offers a powerful solution. This innovative strategy enables sellers of businesses, real estate, cryptocurrency, or high-value collectibles to defer capital gains taxes while maintaining flexibility in wealth distribution.

Key Benefits Overview

The primary advantage of a DST is its ability to postpone capital gains tax obligations through a legally compliant structure. Sellers can negotiate payment schedules to match their financial needs while ensuring full regulatory compliance.

Qualifying assets include:

  • Businesses
  • Real estate holdings
  • Valuable collectibles
  • Cryptocurrency investments

The DST must be established before finalizing any sales agreement.

Legal Setup

Specialized DST tax attorneys create a carefully structured trust. They coordinate with all parties involved to ensure proper documentation and compliance throughout the process.

Transaction Structure

  1. Asset Transfer: The seller transfers their asset to the trust just before closing.
  2. Buyer Purchase: The buyer then purchases the asset from the trust, with proceeds flowing directly into the trust structure.
  3. Tax Deferral Foundation: This arrangement establishes the foundation for tax deferral while allowing the seller to maintain flexibility in how funds are distributed.

Installment Contract

Rather than receiving an immediate lump sum, the seller obtains an installment sales contract from the trust. This contract provides:

  • Flexible payment terms
  • Interest payments based on the pre-tax sales proceeds
  • Flexibility with the timing and structure of payments

Post-Sale Management

Once the sale is complete, the trustee manages the funds in accordance with predetermined guidelines. They work closely with the seller, who becomes the creditor, to develop an investment strategy and oversee regular payment distributions that align with financial goals.

Investment Planning

Professional investment advisors collaborate with the seller to create a diversified portfolio tailored to their long-term objectives. This may include:

  • Various asset classes
  • Investment vehicles balancing growth and security
  • Tax-efficient strategies to maximize wealth preservation

The Deferred Sales Trust is a sophisticated approach to asset sales, offering significant tax advantages through proper structuring. For those considering large asset sales, consulting with DST specialists ensures proper execution of this powerful strategy.

Get Started Today

Contact our team at Reef Point LLC to learn how a DST can benefit your specific situation. Our experts are here to guide you through the process and help you maximize your financial future.

Timing Your Deferred Sales Trust: When to Start the Process for Maximum Tax Benefits

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When it comes to deferring capital gains tax on the sale of highly appreciated assets, such as real estate, a business, or other investments, the timing is everything. A Deferred Sales Trust (DST) is a powerful tax-deferral strategy, but to take full advantage of its benefits, you must begin the process well in advance of your sale closing date.

If you’re considering a DST as an alternative to a 1031 exchange or as a solution for a taxable sale, here’s what you need to know about the timeline to ensure a smooth and effective transaction.

Timing Your Deferred Sales Trust: When to Start the Process for Maximum Tax Benefits | Reef Point LLC

When Should You Begin the DST Process?

For a Deferred Sales Trust to be legally structured and compliant, the trust must be created before the sale of your asset is finalized. This means consulting with a DST Trustee and a Tax Attorney as early as possible. While a minimum of two weeks before your closing date is recommended, in many cases, even two weeks may be too late.

Don’t wait until the last minute; the further along your transaction is, the less flexibility you have in implementing a DST strategy.

Critical Tax-Trigger Dates for DST Planning

When planning a Deferred Sales Trust, it’s essential to consider key tax-trigger dates that may impact your ability to defer capital gains taxes:

Actual Receipt and Constructive Receipt:

Actual Receipt occurs when you have taken possession or control over the sales proceeds. Your tax obligation is triggered when this occurs

Constructive Receipt occurs when you have the legal right to personally receive the proceeds. You may not need to have actually received the sale proceeds for you to be considered to have Constructive Receipt. An example may include a sale where all contingencies on both sides have been met and both sides are therefore legally obligated to perform on the closing of the contract. For income to be considered constructively received by the taxpayer, the following conditions must be met: 

No substantial limitations: Access to the income is not subject to any significant conditions or restrictions. 

Credited or set apart: The income is set aside or credited to an account for the taxpayer.

Unrestricted access: The taxpayer has the immediate and unrestricted right to obtain the funds.

In the event you are involved in a 1031 Exchange, Taxes may be triggered in the event your 1031 Exchange “Fails”. A 1031 Exchange fails – for for example, when:

  • You don’t identify replacement property within the IRS time limits (45 days).
  • You don’t close on the replacement property within the 180-day limit.
  • Failure to replace debt on the relinquished property may trigger partial taxation.
  • Other technical mistakes (like using the wrong intermediary or direct receipt of funds).

By keeping these dates in mind, you allow enough time for your DST team (Tax Attorneys, Trustees, and Transaction Coordinators) to properly structure your trust and coordinate with parties involved in your sale (Escrow Officers, Title Companies, or Transaction Attorneys).

Early planning is important for a DST. Many sellers assume they have more time than they actually do. However, once your transaction reaches a certain point, it may be too late for a DST for tax deferral. To avoid missing out on this opportunity:

  • Schedule a consultation early. The best time to discuss your DST options is when you’re considering selling, not after you’ve signed a purchase agreement.
  • A properly executed DST requires time for legal and financial planning.
  • Coordinate with your closing team.

If you’re selling real estate, a business, or another highly appreciated asset, don’t leave tax planning to chance. A Deferred Sales Trust can help you defer capital gains taxes and reinvest but only if you start the process in time.

Contact Reef Point for a free DST consultation today to discuss your transaction and ensure you meet all necessary deadlines.

Webinar Replay: Deferred Sales Trust vs. Monetized Installment Sale – Separating Facts from Fiction

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Webinar Replay: Deferred Sales Trust vs. Monetized Installment Sale – Separating Facts from Fiction

Are you or your clients facing significant capital gains taxes on the sale of a business, investment property, or other high-value asset? In our recent webinar, Reef Point LLC provided an in-depth comparison of the Deferred Sales Trust and the Monetized Installment Sale (MIS) to help investors and advisors make informed decisions.

During the session, we covered:

  • Why the DST and MIS are not the same or even similar strategies.
  • How the MIS was declared an illegal step-transaction and placed on the IRS “Dirty Dozen” list.
  • The key differences between the DST and MIS.
  • How the IRS has consistently ruled the DST to be legal and compliant for over 27 years.

Webinar Date: January 29, 2025

Intrigued and Want to Know More?

If all of the above appeals to you and you want to find out more about the benefits of partnering with Reef Point, contact us today. Greg Reese will be happy to answer any questions you have, and also give you a free DST analysis.