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.
Deferred Sales Trusts (DSTs) have been in existence for years, but nevertheless remain relatively unknown today. We here at Reef Point, therefore, thought it would be a good idea to give you a brief overview of the three main pillars of a DST, namely:
If you have invested in real estate in the past, you likely have also done a 1031 exchange. As you undoubtedly learned, however, 1031s have numerous risks and disadvantages. While they defer your capital gains tax liability when you sell a piece of appreciated real estate, the rules and regulations that apply to them can make them unappealing at best and downright dangerous at worst. Why? Because they often fail, leaving you with an enormous capital gains tax to pay.
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?
As an astute investor, you know that long-term capital gains taxes can quickly eat away at the profits you make on your investments. Consequently, avoiding or at least deferring payment of these taxes for as long as possible is likely one of your main objectives.
Despite the fact that savvy investors have been making use of the Deferred Sales Trust (DST) for over 20 years, you may not have heard about this legal, tested and innovative way to defer capital gains tax liability when you sell a highly appreciated home, business or piece of commercial real estate. If not, we at Reef Point are happy – and proud – to present this Complete Guide to the DST.
Today we begin a new 2-part series on one of the most innovative ways in which to do a 1031 exchange: bifurcation with a Deferred Sales Trust (DST). In Part 1, we’ll explain how a bifurcation works. In Part 2, we’ll explain an alternative you may wish to consider. As you likely already know, Internal …
Read moreWill a Bifurcated 1031 Exchange Achieve Your Investment Goals – Part 1
In previous articles we discussed how the Deferred Sales Trust (DST) is a specialized form of installment sale authorized by Section 453 of the Internal Revenue Code. In a DST Trust installment sale, the entire course of the transaction and its continued operation revolves around a secured installment note in favor of you, the seller. In this context, “secured” means that all of the assets in the DST serve as collateral, i.e., security, for repayment of money to you per the note’s terms.
If you’re new to the concept of a Deferred Sales Trust, you likely have a lot of questions about what DST is and how it can help you achieve your financial, investment and estate planning goals, such as the following:
The DST can be used as a vehicle that does what a 1031 exchange does, without the problematic timelines and other stringent requirements, but it also can do so much more. In order to understand the pros and cons of a DST and a 1031 exchange and the benefit they give you, you must first understand 1031 exchanges themselves.