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Maximize Your Real Estate Investment with 1031 tax deferred exchange DST
Introduction
As a savvy real estate investor, you’re always looking for strategies to maximize your investments and minimize your tax burden. One such strategy is the 1031 tax deferred exchange, a powerful tool in the investor’s arsenal. When combined with a Delaware Statutory Trust (DST), this strategy can significantly enhance your investment portfolio. This post aims to demystify these concepts, providing valuable insights for you to leverage in your real estate endeavors.
What is a 1031 Tax Deferred Exchange?
A 1031 exchange, named after Section 1031 of the IRS code, allows investors to defer capital gains taxes on the exchange of like-kind properties. Essentially, if you sell an investment property and reinvest the proceeds into another investment property, you can defer the tax liability. This is a great benefit for investors, enabling you to leverage your capital more effectively. For example, if you sell a residential rental property and invest in a commercial one, you can defer your capital gains tax, assuming all IRS rules are followed.
Introduction to DST (Delaware Statutory Trust)
Enter the Delaware Statutory Trust (DST). A DST is a legal entity that allows multiple investors to hold fractional interests in real estate. It’s particularly relevant in 1031 exchanges because of its ease of use and flexibility. Investors in a DST passively own real estate and can use DSTs to participate in larger, potentially more profitable properties than they could individually
How DST Enhance 1031 Exchanges
DSTs simplify the process of identifying and acquiring replacement properties in a 1031 exchange. They provide access to high-quality, pre-packaged real estate investments, which can be crucial when facing the 45-day identification period in a 1031 exchange. For instance, an investor can sell a rental property, and rather than searching for another property, they can reinvest in a DST that holds a portfolio of properties, thereby meeting the requirements of the 1031 exchange.
Advantages and Considerations for Investors
Investing in a DST within a 1031 exchanges offers numerous advantages. It provides access to institutional-grade real estate, diversification across multiple properties, and professional management. However, investors should consider factors like the illiquid nature of DST investments and management fees. It’s crucial to evaluate these aspects in the context of your investment goals and timeline.
Action Steps
Combining a 1031 tax deferred exchange with DST can be a game-changer for real estate investors. It offers a strategic way to grow your portfolio while deferring taxes. If you haven’t yet considered this approach, now may be the time to explore your options. Consult with a tax advisor or a real estate professional experienced in DSTs and 1031 exchanges to tailor this strategy to your investment needs.
Contact us at PERCH WELTH for more information
1031 Risk Disclosure:
- There is no guarantee that any strategy will be successful or achieve investment objectives;
- Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
- Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
- Potential for foreclosure – All financed real estate investments have potential for foreclosure;
- Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.
- Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
- Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits
General Disclosure
Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only. Securities offered through Arkadios Capital, member FINRA/SIPC. Advisory Services offered through Arkadios Wealth. Perch Wealth and Arkadios are not affiliated through any ownership.
Ehud Gersten
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San Juan Capistrano, CA 92675
info@perchwealth.com
Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only. Securities offered through Arkadios Capital, member FINRA/SIPC. Advisory Services offered through Arkadios Wealth. Perch Wealth and Arkadios are not affiliated through any ownership.
Check the background of this firm/advisor on FINRA’s BrokerCheck. 
© 2024 Perch Wealth.
- There’s no guarantee any strategy will be successful or achieve investment objectives;
- All real estate investments have the potential to lose value during the life of the investments;
- The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
- All financed real estate investments have potential for foreclosure;
- These 1031 exchanges are offered through private placement offerings and are illiquid securities. There is no secondary market for these investments;
- If a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
- Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits;
- Tax benefits are not guaranteed and are subject to changes in the tax code.