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The 2021 Guide to the DST

Reef Point LLC · August 31, 2021 ·

2021 Guide to the DST | Reef Point LLC

In 1963, the incomparable Bob Dylan wrote “The Times They Are A-Changin.” While his song referred to the societal and political changes occurring in the 1960s, it could just as well apply to the tax changes on the horizon today.

President Biden’s $3.85 trillion American Families Plan calls for not only a substantial increase in the federal capital gains tax rate for real estate transactions involving gains in excess of $500,000, but also for elimination of 1031 exchanges. If passed by Congress, both of these proposals will negatively impact you when you sell your highly appreciated real estate holdings, even if you choose to reinvest the proceeds in like-kind real estate.

The good news is that you can still defer your capital gains taxes almost indefinitely by using the Deferred Sales Trust. In fact, these two proposals make the DST an even more valuable strategy than it has been for the past 20+ years.

Capital Gains Tax Increase

Today’s federal long-term capital gains rate stands at 20%. Under President Biden’s plan, your long-term capital gains would be taxed as ordinary income if your taxable income exceeds $1 million per year. In other words, it raises the top marginal capital gains tax rate to 39.6%, the highest of any nation in the Organization for Economic Co-operation and Development (OECD). Add in the 3.8% net investment income tax (NIIT) (aka the Obama Care Tax) and state tax rates that go as high as 13.3%, and you face an effective capital gains tax rate of 48.4%.

Tax saving strategies abound, the most valuable of which is that of selling your highly appreciated asset(s) to a third-party Deferred Sales Trust in exchange for a secured installment contract, the terms of which you control. The DST, in turn, sells your asset to your intended buyer. You pay no capital gains tax because you have neither actual nor constructive receipt of the sale proceeds.

1031 Exchange Elimination

As you may already know, a 1031 exchange allows you to defer capital gains recognition on your sale of investment real estate by rolling over your profits into a like-kind real estate investment. The congressional Joint Committee on Taxation estimates that 1031 exchanges may save investors up to $41.4 billion between 2020 and 2024 alone.

Elimination of this tax break for exchanges involving profits of $500,000 or more could hit you hard if you own highly appreciated investment real estate. But if you’ve done one or more 1031 exchanges in the past, you also know that the benefits offered by one are offset by exceedingly strict rules, regulations and time frames.

Savvy real estate investors have long used the Deferred Sales Trust as an alternative to a 1031 exchange. Why? Because a DST doesn’t require you to reinvest in like-kind property. Nor does it require you to designate your intended buyer within 45 days of your sale or complete your sale within 180 days.

Find Out More

To learn more about the advantages and benefits a DST offers you, especially in 2021’s climate of an uncertain future, request a Reef Point consultation today!

Deferred Sales Trust Capital Gains, Deferred Sales Trust, DST, Exit Strategy, Tax Strategy

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Reef Point LLC was founded by Gregory H. Reese who is one of only 13 Trustees in the US for Deferred Sales Trusts.

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3525 Hyland Ave., Suite 145
Costa Mesa, CA 92626
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As an authorized and approved Trustee for the Deferred Sales Trust and Member of the Estate Planning Team (EPT), Reef Point, LLC promotes the use of the Deferred Sales Trust™ or other estate planning techniques and is not responsible for recommendations made by other members of the Estate Planning Team, including the Deferred Sales Trust or other tax, legal or estate planning strategies.

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