One of the most complex underwriting processes in a commercial real estate deal is sorting out exit strategies to save or defer capital gains taxes after selling your property. Your chosen tax deferral strategy should give you debt freedom, diversification, and liquidity. Yes, there’s a legal way for you to grow your capital and delay paying taxes—deferred sales trust (DST).
Deferred Sales Trust (DST) – A Review
The DST strategy is a type of legal arrangement that allows you to defer income tax on capital gains. The concept behind this tax deferral method is for you to sell your property, delay the payment of taxes on capital gains, and reinvest your money to diversify your portfolio. Setting up the contract from the installment sale can either be immediate in receiving installment payments or delay it in the next several years.
Who can Benefit from Deferred Sales Trust
A motivated seller who wants to sell something on an installment basis while gaining profit at the same time.
Commercial real estate investors with large earnings (eg: commercial buildings, homes) and want to gain constant income without going through the hassle of handling other party(s).
Buyers who can’t pay upfront for the property but can afford to pay a little amount monthly over a long period.
How Deferred Sales Trust can Save a 1031 Exchange
A 1031 exchange is also another tax strategy that you can use to avoid paying taxes; however, it strictly follows a certain schedule. As required by law, the 1031 exchange can be completed once the sale is closed within 180 days. In any case, when closing that sale is not happening within that specific time, the qualified intermediary can put the sales proceeds into a trust. A trustee is assigned by the intermediary to receive the sales proceeds at a certain time. At this point, the tax strategy is switched to DST. What’s great about the DST method is that there is no time limit for you to reinvest your funds, thereby helping you grow your investment portfolio and build wealth over time.
In any commercial estate deal, you need a trusted decision partner who can help you decode the tax implications before buying or selling a property. You need a reliable team to help you achieve your investment goals. If your goals are aligned with the results of using the DST strategy, find a reliable third-party trustee to handle the transaction for you. Start a conversation today.