Option 1: Cashing Out Because of tax consequences, this is usually the least appealing option for investors. However, there are times when investors opt to sell their DST 1031 investments and simply cash out, deciding to pay the associated tax liabilities that can quickly add up.
This final tax bill for a lot of investors may be very large, convincing many to seriously consider the next two exit strategies: the 1031 exchange or a 721 exchange.
Option 2: 1031 Exchange
A 1031 exchange (also known as a like-kind exchange) is the most popular and therefore most familiar exit strategy for investors following a DST investment full- cycle event. Because section 1031 only defers the gain that would otherwise be recognized in a taxable sale, many real estate investors do not sell their replacement properties. They continue to exchange it and continue the deferral by exchanging over and over. In this way, investors enter a series of exchanges, sometimes completed over decades. This is commonly known as a “swap ‘til you drop” strategy and has proven to be an effective strategy for building real estate wealth over time and creating an estate planning tool.
Option 3: 721 Exchange Option
Another powerful tax deferral tool that is lesser known by even experienced investors is called a 721 exchange. The IRC Section 721 offers investors an additional exit strategy outside of selling or entering into another 1031 exchange.
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