In the United States, some or all of the proceeds from the sale of a personal residence may be protected from capital gains taxation, depending on the amount of the calculated gain and other established criteria. The proceeds from the sale of an investment property, such as income-producing apartments and single-family homes, however, are subject to capital gains taxes.
Real estate investors, especially those in the process of building a profitable portfolio, must carefully consider the impact of potential capital gains taxes on their business and look for ways to minimize or avoid it. When understood and used correctly, the DST 1031 exchange can provide real estate investors with a legal shelter from capital gains taxation.
What is a DST 1031?
A Delaware Statutory Trust (DST) 1031 is a type of trust that allows more than one investor to co-invest in one or more properties. Each investor is given fractional ownership in the property, the amount of which is based upon the total number of investors and the total value of the property. If debt is involved in the purchase, the liability for it is also shared among the property's investors.
How does a DST 1031 work?
Any earned income or sale proceeds from a property held in a DST 1031 is distributed to the owners, according to the amount of their fractional ownership. Costs of maintaining or improving the property as also shared, using the same type of ownership structure.
What qualifications are needed?
Taking part in one or more DST 1031s requires a monetary investment on the part of each investor. Unlike a traditional mortgage used by multiple buyers, the mortgage of a property held in a DST does not require each investor to qualify separately. Instead, the DST is the liable entity for any mortgage loan used to make a qualifying purchase.
Why consider becoming involved with one or more DST 1031s?
One of the most important reasons to consider DST 1031s is their potential to benefit investors who are unable to purchase a suitable property on their own. The opportunity to share in the purchase of larger, more valuable investment properties can reap much higher returns for the investor.
Investors who utilize DST 1031s can also choose to diversify their investments over multiple properties to help minimize financial risks that may be associated with a single investment strategy.
To learn more about DST 1031s and decide whether one is right for your investment situation, contact a trusted financial services provider in your area.
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24 September 2020
When I started thinking about my life, I realized that I was spending a lot more money than I should be every month on little extras. I wanted to streamline things, so I decided to start focusing on getting my finances in order. I started looking around my house, and I was pleased to discover that there were more than a few things I could sell for a little extra cash. I put them online, and I was amazed to see how quickly they sold. After selling some things, I was able to get my finances in order, which was a huge relief. This blog is all about getting your finances in order.