DST 1031 exchange info Advice, Capital gains taxes Tips, Property Sales Guide
DST 1031 exchange info: How Does It Work?
17 Sep 2020
Capital gains taxes can be a burden to pay especially when it takes up a large portion of the revenue you are supposed to gain from a sale. One of the solutions to this problem is applying for qualification on availing a section 1031, whereby your property is deemed to be an exchange instead of a taxable sale. The capital gains tax is deferred and avoided at the moment. Higher profitability can also stem from a section 1031 exchange as you are given the opportunity to seek for a new investment opportunity. This can be a higher quality of a real estate property that you can invest in and gain greater income from than your original or previous investment.
Under this Internal Revenue Code, a 1031 exchange DST is a possible and advisable way to defer the taxes you have been trying to avoid paying at the moment. It also provides a passive income where your role as an investor is as light and minimal as can be, yet income is continuously generated.
You may want to think of trying a 1031 exchange DST, so here’s what it is and how it works:
The Step-by-Step Process of a 1031 Exchange DST and its Timeline
- The onset of a 1031 Exchange DST begins when the owner or exchanger of an investment property feels the need or desire to sell said property. He/she must find and notify a qualified intermediary of exchange before the selling is closed.
- After the sale, the proceeds from the sale are held only by the qualified intermediary. This is to ensure that an exchange will actually happen, and the proceeds are immediately invested in a new real estate property or a DST. DST is accepted as replacement property under section 1031 although there are requirements that are needed to be met.
- Once you have identified the replacement property within 45 days of the sale, you must notify your qualified intermediary. He/she will work with you in making the execution of the exchange as smooth as possible.
- Funds are then transferred or allocated to the replacement properties. As the exchanger, you have 180 days to close on new properties.
The Sale date of a company starts from step 1 where the exchanger decides to sell his/her property. Up until 45 days, this is the sale date of the exchanger. It is also the time where he/she identifies the like-kind replacement property that is suitable to be your new investment. Starting on Day 45 up to the last day which is the 180th day of the entire exchange, the exchanger must finalize and close on the replacement property he/she had chosen from.
After 180th day, when you have accomplished all the steps and presented the requirements, you then officially become a 1031 exchange DST investor. You have deferred your taxes and are given the opportunity to generate an income passively and risk-free as you are protected from liability issues that may be encountered in the future.
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