Delaware Statutory Trusts (DSTs) are sophisticated investment vehicles that allow individual investors to purchase fractional shares of the types of real estate often owned by real estate investment trusts, pension funds, and institutional investment firms.
Acquiring real estate for investment purposes can generate a multitude of benefits. One potential advantage involves the available deductions, including expenses and depreciation.
Internal Revenue Code Section 179 allows business owners to use a tax deduction for certain depreciable purchases that they would otherwise capitalize on. This IRC provision enables the business owner to take the entire deduction in the year they purchased the items instead of depreciating the cost over the longer term. The provision applies to specific assets such as equipment, vehicles, and software and is intended to provide an incentive for small businesses to expand their operations by purchasing new equipment.
Among the attributes of real estate investing that appeal to investors are the tax advantages that investors can use. First, the investor can deduct the costs of owning, maintaining, and operating rental property. The ability helps to reduce the taxes you pay on income from rental property. Deductible expenses include mortgage interest, property taxes, maintenance and repairs (not improvements), marketing, and similar items.
Estate planning can be complex, partly because the process can be rife with misunderstandings and assumptions. Such issues can range from what exactly is tax exempt to who exactly receives disbursements or assets.
Investing in real estate typically involves not just income and expenses but also navigating the tax implications on the value of the investment. Therefore, an investor may choose a Delaware Statutory Trust (DST) to pursue potential gains, the passive nature of ownership and income, and the tax advantages.
Whether you work for another company or are self-employed, you pay taxes. This is true regarding the Medicare tax, a percentage of gross income that employees, employers, and the self-employed must pay to fund Medicare.
If you’ve taken the time to consider estate planning, you’ve likely run across the concept of power of attorney. A power of attorney (POA) can be helpful in an incapacity strategy. It can also provide transparency in business or financial matters.
When performed successfully, the 1031 exchange process can help you trade your real estate property into another one of greater or equal value and allow you to potentially defer capital gains and depreciation recapture taxes.
When it comes time to sell real estate you might use for business or investment, you could defer capital gain and depreciation recapture taxes with help from 26 U.S. Code § 1031 – “Exchange of Real Property Held for Productive Use or Investment.” When you follow the IRS rules for a 1031 exchange, you “swap” real estate you currently own (relinquished property) into different real estate (replacement property).