A 1031 exchange is an excellent opportunity for investors to defer capital gains tax. You can defer up to 100% capital gains tax if you abide by the rules laid down by the IRS. To qualify for a 1031 exchange, you must satisfy all requirements that the IRS wants you to fulfill. For example, once you sold your old property, you must identify a new like-kind property within 45 days (i.e., during your identification period). Similarly, you must complete your 1031 exchange transaction within 180 days, which starts from the day you sell your old property.
Invest your sale proceeds in multiple DST assets.
A DST stands for Delaware Statutory Trust, but it isn’t limited or bound to the jurisdiction of Delaware state. A DST is a private trust in which every investor receives an interest in the DST property to avoid income tax. When you invest in a DST, you own a fractional interest in one of the DST properties. Over the years, many investors have made use of DSTs to complete their 1031 exchanges, as DSTs offer several benefits.
- You can co-own a DST property for as little as $100k, which lets you diversify your portfolio without investing big.
- DSTs also let you buy income-producing assets without the burden of actively managing the property.
It is better to know in advance which asset you want to buy if you are planning to invest in a DST. Each DST includes different investment conditions, which means the challenges and prices associated with the two DST investments will differ.
A DST 1031 Exchange transaction can help you build a profound investment career.
A 1031 exchange DST investment is not only used by investors to defer capital gains tax but it also offers several other benefits that you are likely to get in an individual DST investment. For example, other than deferring capital gains tax, you are also entitled to receive a regular flow of income without the burden of owning the property title. Not to mention, you can swap an old investment property with a bigger DST property using a 1031 exchange. Isn’t it amazing? However, whether you decide to invest in a DST or choose a 1031 exchange separately, you must discuss your situation with your advisor. Talking to a 1031 expert and sharing your requirements can help reduce potential financial risks.
While owning multiple investment properties pleases every investor, handling those assets could be a nightmare for them. If you’re an active investor and has multiple income-producing assets, you must have found it challenging to maintain all those assets. From tracking the bills to carrying out minor repairs, you need to take care of everything being the landlord. You might have seen investors getting rid of their properties even for a lesser value than the actual price sometimes. This happens mainly because they find it challenging to invest the amount of money or time required to manage those properties. However, if you don’t want to sell your property and want a less management intensive asset, we recommend you do a 1031 exchange on your asset and invest the proceeds in a triple net property.
A 1031 exchange is a great way to get rid of an old asset without being taxed.
Usually, when you sell a property, you need to pay capital gains taxes as asked by the State and Federal Government. The taxes could sum up to a huge amount if the property costs much. Selling your old property and investing the proceeds in a new asset using a 1031 exchange is one of the fewest knowns ways to defer capital gain tax. As mentioned earlier, a 1031 exchange is a tax-deferral tool provided by the IRS to investors. You can qualify for a 1031 exchange by reinvesting your sale proceeds from the old property into another investment property.
Triple Net properties are less management intensive assets.
After doing a 1031 exchange on your old property, you can reinvest the money into a triple net property to get rid of landlord responsibilities. A Triple Net or NNN lease is a single-tenant arrangement that requires the tenant to pay operating expenses instead of the landlord. Major expenses, including insurance fees, maintenance costs, and property taxes, are covered by your tenant, and you, being the landlord, are not needed to pay these expenses from your monthly income. In addition, you don’t need to answer daily calls reminding you of dues on your property. If you have a couple of investment assets or a depreciated property that you want to sell, it is wise to do a 1031 exchange on it for a triple net property.
Locate triple net properties without wandering around.
You may find a few real estate firms facilitating 1031 exchanges and offering NNN property lists. All you need to do is visit one such website and choose an ideal NNN property. However, before you make the final call, I recommend you speak to your advisor or a 1031 exchange expert. Discussing your present situation and requirements with an expert can help in getting better returns. I hope you found this blog valuable and got the answer you were searching for.