f you’ve been keeping up with the news coming out of Washington, D.C., the past several months, you know that President Biden’s $1.8 trillion American Families Plan calls for raising the federal long-term capital gains rate from its current 20% to 39.6% if you earn more than $1 million per year. Ouch! As the owner of highly appreciated investment real estate, no one need tell you the enormous negative impact such a capital gains tax hike would have on you when you decide to sell one of these properties.
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.
As you’ve likely already discovered, divesting yourself of substantially appreciated commercial real estate investments can be tricky at best. A straight sale exposes you to a huge long-term capital gains tax payment. A 1031 exchange has numerous rules and narrow time frames that can make it unfeasible. What to do?
When you think about a Deferred Sales Trust, you likely think of it as a unique strategy for selling highly appreciated investment property while deferring capital gains taxes. But you may not realize that you can also use a DST as a business exit strategy and when selling your primary residence.
If you invest in real estate, you likely have heard about Deferred Sales Trusts (DSTs), the innovative, legal and proven method of selling investment real estate that allows you to defer payment of capital gains taxes while offering you almost total flexibility in your investment choices. But have you ever considered the DST as a real estate exit strategy?