You likely already know that Section 453 of the Internal Revenue Code authorizes you to sell your highly appreciated asset by means of an installment sale, thereby allowing you to defer your capital gains taxes. You may also know that a Deferred Sales Trust is a special proprietary type of installment sale. But have you ever compared the two head-to-head to determine which offers you more advantages? If not, read on. You’re in for a very pleasant surprise!
Per Section 453 of the Internal Revenue Code, you can defer capital gains taxes on the sale of your substantially appreciated investment real estate or business by means of an installment sale. A Deferred Sales Trust is an innovative type of installment sales contract that not only defers your capital gains taxes, but also provides you with numerous other benefits as well.
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’re thinking about doing a 1031 exchange of investment real estate or a business, or have already started the process, you know that the stringent time frames required by a 1031 exchange can be challenging at best and impossible to meet at worst. You have only 45 days from the sale of your property to identify “like kind” property to buy. You have only 180 days from the sale of your property to close on the purchase of the “like kind” property.
If you’re a professional who represents high net worth clients, you know that capital gains taxes constitute one of their main challenges when they sell a highly appreciated piece of investment real estate or a business. Today’s long-term capital gains rates are 15% for taxpayers filing jointly who make between $80,001 and $496,600 per year. For those making $496,601 or more, the rate increases to 20%. In some circumstances, they may owe an additional 3.8% on the lesser of their net investment income or the amount by which their modified adjusted gross income exceeds the statutory threshold based on their filing status.