There is a backup plan that could save your exchange from taxation. If suitable, the Delaware Statutory Trust or DST is a great option.
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If you own an investment property and are thinking of selling it, if suitable, engaging in a 1031 “like-kind” exchange may be a smart move. When done correctly, a 1031 exchange will allow you to defer all or part of the capital gains and depreciation recapture tax you would otherwise need to pay upon completion of your property sale.
When engaging in a traditional 1031 exchange, you must sell your original property before you can purchase a replacement property. The major drawback here is that if the original property takes a long time to sell, you could miss out on your opportunity to buy the perfect replacement property. This is where a reverse 1031 exchange comes in.
The possible tax benefits that the 1031 exchange may offer, in combination with the option to divide assets appropriately to benefit heirs down the line, make 1031 exchanges an estate planning strategy worth considering.
Are you thinking of selling your multifamily property and do not want to pay capital gains tax? DSTs are passive real estate investments run by professionals who manage property acquisitions and day-to-day operations. They often contain relatively low minimums, making them accessible to many real estate investors.
Thinking of selling your multifamily property, but unsure of your tax exposure? The more you understand the ins and outs of capital gains and ordinary income, the better prepared you are to lessen your potential tax hit.