June and John were a gregarious couple who owned and operated a successful upscale restaurant in San Francisco. They not only owned the restaurant, but also the building in which it was located. While they loved their business, they were now in their late 50s and looking forward to retirement. As often happens, however, none of their three grown children had any interest in taking over the business.
In a previous post, we explained how the Deferred Sales Trust (DST) can benefit you if you live in a state, such as California, that imposes a state income tax. But what if you are fortunate enough to live in a state with no state income tax? How does the DST benefit you then? Read on to discover two ways in which the DST can shield you from substantial capital gains taxes when you sell a highly appreciated asset. For purposes of these case studies, assume you live in Florida, one of the states that imposes no state income tax, and therefore no state capital gains tax.
With the possibility of capital gains tax rates increasing in the near future, you face a risk that, when you sell a highly appreciated asset, an even larger portion of your sale proceeds will be eaten up in long term capital gains taxes. The Deferred Sales Trust (DST) to the rescue! If you’re a savvy investor, you may have used this unique, proprietary tax deferral strategy in the past when you sold a piece of highly appreciated investment real estate.
In Part 1 of this series, we explained how you can use a bifurcated 1031 exchange and Deferred Sales Trust (DST) to meet your investment and financial goals. In Part 2, we now offer you an alternative to the bifurcation approach.
In Part 1, Charles and Maddie’s story illustrated how life and politics can make a father’s desire to provide for his daughter much harder than it should be. While not ultra-wealthy by any standard, Charles has enough retirement savings that he should be able to structure supplemental income for Maddie for many years should he succumb to heart disease complications or any other premature death.