What is Delaware Statutory Trust (DST) Leverage?
1031 exchanges can be extremely useful tools for investors to use in maximizing their opportunity to reinvest the proceeds of a property sale. 1031 exchange rules require that the replacement property be of an equal to or greater value than the relinquished asset, and the debt levels must also match. It is in regard to the debt levels that the reference to leverage appears. DST leverage refers to a Delaware Statutory Trust keeping a mortgage on the property, assigning investors a share of the debt. It often appeals to exchangers seeking debt replacement for fully tax-deferred exchanges, as it matches their financial requirements.
How Delaware Statutory Trust Ownership Structures Work
Delaware Statutory Trusts (DSTs) are real estate investment vehicles that allow multiple investors to own a fractional interest in a single property. DSTs are established by a Sponsor, who identifies and acquires all properties held under trust. Investors then purchase fractional shares in the DST, which gives them a right to a portion of the property's income and appreciation according to the pro rata share of their investment.
Do You Have to Reinvest Everything in a 1031 Exchange?
A 1031 exchange refers to a section of the Internal Revenue Code allowing investors to defer the capital gains taxes when they sell an investment asset if they reinvest the proceeds from the sale. Using the tool, investors can sell a real estate investment property that has appreciated without paying capital gains or depreciation recapture if they reinvest the proceeds in a “like-kind” asset.
The Other DST – Deferred Sales Trust
Under the IRS ruling, a Deferred Sales Trust (DST) presents a feasible solution for controlling the timing of your capital gains tax payments, which can be particularly useful if a 1031 exchange doesn’t go as planned.
Can You Buy Raw Land With A 1031 Exchange?
When it comes to 1031 exchanges, a common question arises - can you conduct a 1031 exchange on raw land? The answer is definitively yes. Under Section 1031 of the Internal Revenue Code, it's entirely possible to exchange raw land for another 'like-kind' property, which could even be a rental property. It's crucial to remember, though, that properties for personal use, including your main home or vacation homes, don't qualify for a 1031 exchange. The purpose of this rule is to facilitate the reinvestment of business or investment properties, and raw land certainly fits the bill.
How Can You Calculate a Recognized Gain in a 1031 Exchange?
As we’ve mentioned in previous blogs, 1031 exchanges can come with many challenges. There are the in-stone deadlines, cost considerations, and paperwork, to name a few.
Capital Gains Treatments: Mutual Funds vs. DSTs
As an investor, you’re already familiar with capital gains and capital gains taxes. A capital gain is an increase in the value of a capital asset, which is generated when that asset sells. Meanwhile, capital gains taxes are the taxes you owe to the IRS from those realized capital gains from the asset sale.
What Happens to An Installment Sale at Death?
As we’ve mentioned in previous blogs, owning real estate as an investment can generate many benefits. And as we’ve also mentioned in previous blogs, selling appreciated real estate can trigger capital gains and depreciation recapture taxes. The sale could also lead to a higher income bracket, meaning more taxes.
Delaware Statutory Trusts (DSTs) And 1031 Exchange Requirements: What You Need to Know
26 U.S. Code § 1031 – known more commonly as the “1031 exchange” or “like-kind exchange,” allows investors to “swap” real estate holdings. When performed correctly, the 1031 exchange can help defer taxes on capital gains or depreciation recapture taxes. The requirement is that the relinquished and replacement properties must be used for investment or business purposes.
Selling 1031 Exchange Property: What You Need to Consider
Using a 1031 exchange to defer the payment of capital gains taxes on the sale of investment property is an attractive tool for many investors. Successful execution of the exchange will allow a taxpayer to defer paying taxes on the capital gain that an investment property has accrued. Naturally, the IRS is specific about what does and doesn't qualify for this favorable tax treatment. Taxpayers must judiciously adhere to the stipulations to reap the benefits.
