BREAKING FREE FROM 1031 EXCHANGES: THE BENEFITS OF DEFERRED SALES TRUSTS IN TODAY’S REAL ESTATE MARKET Although 1031 exchanges have their place, there are many reasons people don’t want to transact one under current conditions. Let’s explore a potentially better alternative, the Deferred Sales Trust. To obtain the tax deferral using a 1031 exchange, a seller must jump through multiple hoops in the tax code. You must buy another property of equal or greater value—whether you want to or not. In today’s market that may mean you sell high and then buy high. This also may make less sense today given that interest rates are the highest in over two decades. AVOIDING 1031 REQUIREMENTS
What if you don’t want to buy a property right away to replace the one you sold? The Deferred Sales Trust has absolutely no 1031 requirements. You can sell your property today, defer the capital gains tax, state tax, depreciation recapture and the Medicare tax today and have an unlimited amount of time to buy another property under better buying conditions. While waiting, the seller can receive a 5% cash flow on the sales proceeds.
What if you have partners and they want to sell? Say you have three other partners, and you want to sell. The two older partners want to sell and defer their taxes. The two younger partners want to take the money and run to Vegas. Unless the two younger partners decide to defer taxes, a 1031 exchange will not work. But wait! The Deferred Sales Trust can come to the rescue. The two older partners can defer their taxes using a Deferred Sales Trust and the other two partners can go to Vegas. Everyone gets what they want. What if you want to take advantage of depreciation when you want to buy another property? As you know, there are a number of 1031 hoops to jump through when buying a replacement property. One of those hoops includes depreciation. When buying a replacement property, you do not get a new depreciation schedule. You may get a partial depreciation schedule.
THE DEFERRED SALES TRUST HAS ABSOLUTELY NO 1031 REQUIREMENTS.
What if you want to retire from real estate? With a Deferred Sales Trust you can sell today, defer taxes today, retire today, and generate a larger pretax lifetime retirement income than if you paid taxes first.
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