Deferred Sales Trust: Defer Capital Gains Taxes With More Flexibility Than a 1031 Exchange

Do you want the freedom to sell real estate at the top of the market and wait to invest until the right time, without having to rush cash into a new property with a 1031, but still be able to defer taxes? A deferred sales trust may be for you - this capital gains tax deferral strategy offers investors unprecedented flexibility. https://www.youtube.com/watch?v=SvbmzY7Xqw4 In this episode, we’re talking with Brett Swarts about why investors need to know about the Deferred Sales Trust. If you want out of the box solutions to capital gains, a rescue from a failed 1031, or to find out how to save capital gains taxes over the deferral limits, so you can maximize your real estate investing progress and momentum, in your own timing and on your own terms … tune in below! What You'll Learn About Deferred Sales Trusts: Why capital gains taxes can devastate your profits - and the legal strategies the IRS encourages to minimize them How deferred sales trust benefits outperform 1031 exchanges - no time limits, no like-kind restrictions, complete investment flexibility The exact step-by-step process of how a deferred sales trust works to defer your capital gains taxes When to set up a DST - including the three critical windows that can save a failing 1031 exchange Expert insights from Brett Swarts - CEO of Capital Gains Tax Solutions and leading DST specialist What is Capital Gains Tax? Capital gains tax can seriously reduce profits from your investments when you sell them. And there are any number of reasons you might be selling an investment. On investment real estate, you pay capital gains taxes on appreciation over your cost basis and the recaptured depreciation of the asset sold. However, the tax rate for capital gains is why strategies exist to defer and diminish their effect. These are legal tax incentives that the IRS actually encourages entrepreneurs and investors to use, to continue to stimulate the economy. If you can overcome a big payment now, you set yourself up to take advantage of bigger and better opportunities. 1031 Exchange Limitations You’ve likely heard of the 1031 Exchange, which allows you to defer capital gains tax. However, the 1031 has limits. You have 45 days to identify the new property, and 180 days to close. And, it requires an equal trade—a like-kind asset of equal or greater value. When it makes sense, it’s a great provision, but results depend on the market. Then, there’s the deferred sales trust—which allows you to play the long game. What is a Deferred Sales Trust? So what is a deferred sales trust exactly? It's a powerful alternative to traditional 1031 exchanges that gives investors complete control over their timing and investment choices. The Problem with Traditional 1031 Exchanges When investors sell their properties, a 1031 Exchange is a popular choice and allows them to transfer ownership without realizing capital gains. However, in a market like 2008, it isn’t nearly as effective. Investors who had taken on too much debt and overpaid for their properties were finding themselves selling high and then buying high. If a 1031 exchange doesn’t seem right for you, or you're unable to complete your exchange, you won’t want to sit on your cash. Otherwise, you’ll be paying up to 20% in federal capital gains taxes, plus there could be additional state and Medicare taxes, depending on which state you live in. On top of that, you'll owe depreciation recapture taxes at ordinary income tax rates. The DST Solution With a DST, you work with an outside trustee to sell the property within the trust. Rather than receiving a big payout upon closing, the money goes into a trust. From there, you’re only taxed as the money is distributed. The funds from the sale allow you to diversify your investments, giving you the chance to wait for the right deal. There’s no pressure to purchase another property. Where a 1031 is quick,