Expert Brett Swarts explains how to exit a business or real estate to defer capital gains tax using The Deferred Sales Trust™ (“DST”)

With the new Biden Administration considering eliminating or limiting the 1031 exchange and stepped-up basis, now is the time to plan for an alternative to defer capital gains tax on the sale of highly appreciated assets. It’s not just Biden. In fact, in 2017 when former President Trump and Congress met to overhaul the tax code, the 1031 exchange was under fire there too. The threat was to take away one of the real estate investor’s most powerful tax deferral strategies: The 1031 Exchange. Did they succeed? The answer is yes, they limited it and took it away for everyone except real estate investors. Real estate investors held on in 2017, however, with Biden now setting his eyes on the 1031 exchange and with Democrats in control of the house and the senate, the 1031 may be on the way out for real estate investors who earn more than $400,000 per year. However, there is a light at the end of the tax tunnel….

“Deferred Sales Trust is a trusted, proven solution to defer capital gains tax.” – Brett Swarts, Founder of Capital Gains Tax Solutions 

What is a Deferred Sales Trust™ (“DST”)? 

The answer is: a specialized type of installment sale under IRC Section 453, which has had a long track record of success and has withstood scrutiny from both the IRS and FINRA since 1996. The name Deferred Sales Trust™ is utilized to achieve capital gains tax deferral (and potentially Estate Tax relief). 

Advantages of The Deferred Sales Trust™ (“DST”)

The Deferred Sales Trust™ (“DST”), not to be confused with a Delaware Statutory Trust, provides transformational benefits to the highly appreciated asset owner who knows how to utilize it. 

1. Capital to reinvest

Instead of paying 30-50% in capital gains tax and depreciation recapture to the IRS, invest those before tax dollars in a portfolio of Private or Syndicated Real Estate, Business Venture, Hard Money Lending, Investment Real Estate Development, Mutual Funds, ETFs, REITs, Stocks, Bonds, Managed Accounts, Annuities, Life Insurance, etc. Make the law of compound interest be your friend and grow your portfolio with deferred taxes.

2. Lower risk by diversifying your equity and buying with no time restrictions

A significant benefit of using a Deferred Sales Trust™ is that there are a broad variety of investments that can be selected to secure the principal and the return specified in the note, as opposed to a 1031 exchange where only compliant, like‐kind property (generally real estate) can be acquired with the pre‐tax proceeds. The 1031 exchange also has strict time restrictions of 45 days to identify a like-kind replacement property and 180 days to close escrow. The Deferred Sales Trust has zero time restrictions meaning you can sell high and buy low. Learn more here about how the Deferred Sales Trust is like a time machine.

3. Management

Trading tenants, toilets, trash, termites for passive income, or active income from real estate or securities can be transformational for your time and energy. 

4. Brand New Full Depreciation Schedule

27.5 years for Multifamily Real Estate, 39 years for commercial real estate, and accelerated depreciation will eventually mean lower tax write-offs. By using a Deferred Sales Trust to purchase active real estate properties, investors can start with a 100% brand new depreciation schedule and increase tax write-offs. Compared to the 1031 exchange where the old depreciation schedule travels, the DST is a clear winner here. Learn more now in this video.

5. Consolidation of multiple assets

Who does this work for? Virtually any individual or entity can utilize a DST to defer capital gains taxes on the disposition of a qualifying asset including primary residences owners, investment real estate, businesses, stock including public or private, cryptocurrency, artwork, and collectibles. Gather the sale of multiple assets into one DST trust for making your estate plan simple and clear. Here is a video with Kevin Harrington from Shark Tank discussing the selling of stock and using the Deferred Sales Trust with me.

6. Increased cash flow

Investors can trade non-cash flowing assets (like primary home or land) for an asset that generates cash flow. 

Sorting out capital gains tax deferral strategies can be confusing. Also, finding a proven track record tax deferral strategy that gives you debt freedom, liquidity, diversification, ability to move funds outside of your taxable estate all while not using a 1031 exchange at the same time, is hard to find. That’s why we’ve started Capital Gains Tax Solutions and offer The Deferred Sales Trust™ (“DST”). So you or your clients never have to feel trapped by capital gains tax or a 1031 exchange ever again. Get clarity today on the differences between each tax deferral strategy you are considering including the Delaware Statutory Trust, Charitable Remainder Trust, Monetized Installment Sale, 1031 exchange, Opportunity Zones and learn more about The Deferred Sales Trust™ (“DST”) today by downloading a free e-book, Sell Your Business Or Real Estate Smarter here at http://capitalgainstaxsolutions.com/.

Here’s to making the best decision for you, your family, and your estate, no matter what the final decision will be for the Biden Administration on the 1031 exchange. 

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(Featured image by Scott Graham via Unsplash)

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