The DST 1031 Exchange is a disposition that allows real estate property owners the benefit of differing capital gain taxes on their rental property. The tax code section 1.1031 reads as follows: "No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment." This is basically a method that will defer your taxes and it affords you the opportunity to gain more wealth.
What are Some of the Stipulations to the DST 1031 Exchange
In order to benefit from Delaware statutory trust advantages, you do well to understand the stipulations. This means that you, as an investor, would have to basically replace your relinquished property and invest the funds from the sale of that property into a property that is of like kind. “Like kind” can mean anything from another rental property, raw land, a fractional interest in an establishment, or even storage facilities. “Like kind” is an ambiguous term that can mean a wide array of different properties. The basic idea is that you are not taking the money from that sale and spending it on property that you will be living in yourself. If you were to spend the money that you got from a sale on yourself, then you would have to pay the taxes on the capital gain.
More Rules To Keep in Mind for the 1031 Exchange
When it comes to the property that you invest in, there is a three property rule. This rule indicates that you, as an investor, are allowed to find three properties that are potentially suitable replacements, and there are no restrictions on the market value of these properties. Apart from that, there is also a rule of 200%. This allows you to exchange property as long as the accumulated value of that property does not exceed 200% of the value of the property that you are going to sell. Finally, there is a 95% rule. This rule indicates that you can acquire any property that is valued at 95% of the property’s total value or more.
Why Is This So Beneficial?
If you have owned rental property, you may be ready to sell it. You should do all that you can to take advantage of tax advantage exchanges. These are funds that are perfectly legal, and they are set up to support you as an investor. Instead of having to pay taxes on the capital gains from the property that you sell, you can transfer that into another wealth building tool. This could signify the purchase of a bigger and more expensive property, and this can increase the value of your assets. Apart from that, if you are an individual who is getting close to retirement, you can take advantage of a huge tax benefit by exchanging equity and placing it into a passively owned income replacement property.
More Tangible Benefits of the DST 1031 Exchange
Renting out property can be a great way to build wealth, but it can also be a huge headache. Renters can be difficult to deal with, and they can also cause damage to your property. Apart from that, you still have to take care of the standard maintenance of the home and pay for a certain amount of utilities. Finding renters can be a headache, and if you have been renting out your property for quite some time, then you are possibly tired of the stress of it all. If you want to free yourself from having to actively manage your rental property, then this is the perfect benefit for you.
The Wealth Choice
Statistics prove that the majority of millionaires have a large portion of their wealth tied into real estate. Since that is the case, you want to capitalize on the real estate market. At the same time, you want to buy and sell your properties in a way that is wise. Take advantage of all of the tax advantages that are available to you, and build your wealth with real estate.