Caitlin John has assembled a team of Professional experts and resources specializing in Delaware Statutory Trusts (DSTs) and Qualified Opportunity Zones (QOZs).
We work closely with our clients to not only understand their goals, objectives and risk tolerance but, we take it one step further. When it comes to advanced tax planning, we remove the complexity surrounding DSTs and QOZs and simplify it so our Clients can make an informed and educated decision. Whether it’s a 1031 Exchange of Real Estate, a Qualified Opportunity Zone to transfer highly appreciated assets, for example; Stocks, Art Work, Car or Coin Collections or your Family Business…. we seek to help clients utilize and maximize the current tax codes to their benefit.
Let’s Start With The 1031 Exchange?
A 1031 Exchange is a transaction in which a taxpayer can sell one property and buy another without a tax consequence. This is generally done to avoid paying capital gains tax on the sale of appreciated property and/or property that has been substantially depreciated for tax purposes over numerous years. Thereby, substantially compressing their original cost basis for tax purposes.
IRS Code Section 1031 allows a taxpayer to take up to 100% of the proceeds from the sale of a property and purchase ownership in new property, while deferring the tax on the sale of that property.
What Is My Tax Exposure
Contingent on the type of property you sell, you may incur 6 different levels of taxes:
- 25% Depreciation Recapture
- 15% – 20% Long Term Capital Gains
- State Long Term Capital Gains
- 3.8% NII / Affordable Care Act Tax
- Increase in Ordinary Tax rate in the year of sale
- Potential AMT Tax
Understanding The 1031 Exchange Basics
Seller arranges for the sale of property and includes exchange language in the sale contract
At closing, sale proceeds are deposited with a Qualified Intermediary (QI) or escrow agent
Seller identifies potential replacement property within 45 days
Seller completes purchase of replacement property within 180 days by directing QI to release funds for closing
Other Key Requirements:
- Must purchase replacement property of equal or greater value
- Must have equal or greater debt on the replacement property
- Must reinvest all proceeds to make the transaction completely tax deferred
Interesting 1031 Facts
Section 1031 Exchanges have been part of the tax code since 1921. In 1995, the IRS began allowing for replacement properties to have multiple owners. This meant that taxpayers no longer had to find, buy, and manage property on their own. The IRS rules state that you can exchange into a partial interest of professionally managed real estate. Today that is usually accomplished through a Delaware Statutory Trust (DST).
Fractional Interest in the DST
A Delaware Statutory Trust (DST) is a legal entity created under the laws of the State of Delaware. A DST is a trust that acquires real estate to be used as 1031 replacement property. Each taxpayer who exchanges into the DST becomes a “beneficial and Fractional owner” of the Trust. Each owner’s beneficial interest is based on the amount they exchange/contribute to the Trust. All income, expenses, appreciation, debt reduction, etc. is shared based on the owner’s percent of interest in the Trust.
1031 Exchanges via “DST” Advantages
- Monthly income stream, DST income can be passed on to surviving family members (spouses and children) without the worries of property management
- Tax Mitigation of federal and state capital gains taxes, ACA tax, and prevents increase of your current tax rates
- Flexible investment amounts provide the ability to easily split the proceeds into multiple DSTs if desired, creating greater diversification.
- Diversification can be geographic, by asset class, anticipated holding periods, management firms, leverage and more
- Schedule E deductions allows for the continued use of depreciation to tax shelter the income created. In addition, some DST properties are in states that have no state income taxes, like Florida or Texas, providing even more tax savings. This maintains and, in some cases, helps to improve your tax sheltering ability
- Personal guarantees are eliminated by DSTs utilizing nonrecourse loans
- Stepped up basis Allows for passing the appreciated asset to beneficiaries, thus avoiding the payment of capital gains tax forever!
- Newer Properties available, usually higher-end, and typically located in states with growing demographics
Building Your DST Portfolio
Today there are several national managers (Sponsors) of properties that create DSTs for use in a 1031 Exchange. These firms professionally manage billions of dollars of real estate. Investors in a DST are utilizing their expertise in management, tenant relationships, acquisitions, dispositions, leasing, financing, geographic knowledge and industry research. Caitlin John works with you in designing the most appropriate portfolio of properties to use for your 1031 exchange.
When It’s Time To Relax
If the responsibility of property management and maintenance is something you’d like to reduce, or even eliminate, a 1031 Exchange, where suitable, can provide many viable options. Most DSTs offer a broad range of high-quality, professionally managed properties that may save you time, lessen complexity, and increase peace of mind.
Led by 36-year industry veteran, Ronald J. Briggs Jr. FIC, CRPC, Caitlin John, along with our network of CPAs, industry Professionals, and Investment Advisors are here to help you achieve peace of mind and confidence.
With the same fiduciary-based diligence and leveraging over 3 decades of planning and investment experience, our team specializing in QOZ, DSTs, and 1031 exchanges will scrutinize these programs and Sponsors to give you our Best Thinking.
The benefits of working with a team of experts combined with a Fiduciary Advisory Firm serving in your best interest are unparalleled! Whether it’s answering questions, doing analyses, or presenting “what if” scenarios. We want to assure you that you are investing in the replacement real estate that best suits your goals, objectives and risk tolerance, while maintaining your pride, and benefits of ownership.
1024 E Grand River Ave
Brighton, MI 48116
Fax: (810) 227-2558
Toll Free: (877) 238-1680
The information, data, and opinions contained herein this communication are provided solely for informational purposes only. They are not warranted to be correct, complete, or accurate. To the extent permitted by law, Caitlin John does not accept any liability arising from the use of this communication. You should not assume that any information, data, or opinions contained herein serves as the receipt of, or a substitute for, personalized investment advice from Caitlin John or from any other investment professional. Past performance is not an indication of future results and actual results may vary. Investing carriers an inherent element of risk, including the risk of losing invested principal.