In previous segments, we’ve explored the wealth building potential of a 1031 exchange by deferring taxes and keeping more of your equity at work.
Another potential tax-advantage of DSTs is the monthly cash flow distributions. Just like direct property ownership, cash flow received from DSTs is eligible for certain income tax shelters.
Pre-tax cash flow is not the same as taxable income. Pre-tax cash-flow is equal to net operating income less debt service, while taxable income is equal to net operating income less mortgage interest and depreciation allowance.
Thus, when evaluating DST opportunities, pre-tax distribution rates may not be the appropriate unit of comparison. For example, if two investments have identical pre-tax distribution rates, but one has no income tax shelters, while the other’s distributions are fully sheltered, then the after-tax distributions may be significantly different.
It is important to recognize that
Income tax shelters are specific to the investment and an individual’s tax situation; and
While the use of debt may provide income tax shelters, it may add risk to an investment.
However, when utilized in consideration of an investor’s risk tolerance and investment objectives, income tax sheltering strategies may significantly increase an investor’s after-tax cash flow. Because it is not how much you make, but how much you keep.
Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized”). Equity securities offered on this website are offered exclusively through Thornhill Securities, Inc., a registered broker/dealer and member of FINRA/SIPC("Thornhill"). Investment advisory services are offered through Thornhill Securities, Inc. a registered investment adviser. Thornhill Securities, Inc. is a subsidiary of Realized. Check the background of this firm on FINRA's BrokerCheck.
Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested.
This site is published for residents of the United States who are accredited investors only. Registered Representatives and Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every representative listed. For additional information, please contact 877-797-1031 or email@example.com.