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 Member Update
Why a Delaware Statutory Trust
Specialist Can be a Real Estate Broker’s
Best Friend
By Chay Lapin, President Kay Properties & Investments
 Key Takeaways:
• Why should real estate brokers present a DST 1031 Expert to their clients?
• Why is a DST 1031 perfect for a multifamily investor who is ready to sell their asset?
• What is “mortgage boot” and why should it be avoided?
T• What do DST 1031 experts bring to the table for both the seller and real estate broker?
investors who share passive ownership of a designated building or entire portfolio of investment properties. This strategy allows investors to create customized and diversified portfolios, alleviate the daily landlord duties, reduce the financial burden by spreading costs across multiple investors, provide investors the potential for monthly income potential, and offers significant tax advantages. DST properties are typically institutional-grade real estate assets like net lease buildings, self-storage facilities, logistics and transportation centers, and multi-family apartments, offering investors the opportunity to own assets that would normally be financially out of reach for them.
Brokers Need a Delaware Statutory Trust 1031 Specialist to Help Them Advise Their Clients
1031 exchanges are often the “preferred solution” for investors who have sold their investment property. Because no matter who the investor is or what type of investment asset that has been sold, they will always face the same challenge at the end of sale of an appreciated property: a big tax bill. This tax event is called “capital gains” and is calculated by taking the difference between a property’s cost basis and the sale price, typically at a rate of somewhere between 15% and 28% for federal capital gains taxes. Add to that depreciation recapture rate of 25%, state capital gains tax, and
oday’s multifamily market is bustling with activity as the number of owners and investors from Maine to California are executing thousands of sell / buy transactions
every single day. According
to a recent multifamily market report by CBRE Real Estate Group, this deal velocity can be attributed in part to favorable economic conditions and reduced negative impacts from COVID-19. So far in 2021, the multifamily market saw $148 billion in transactional activity, representing a 33% total increase over the previous year.
Owners of appreciated rental
properties may have equity
potentially “locked up” in their
investment real estate. Selling
in this bustling market can potentially unlock this trapped equity. Finding replacement properties to 1031 exchange into that provide passive income and potential for diversification is a challenge many sellers face. Delaware Statutory Trusts (DSTs) may be a potential solution to this challenge. That’s why more and more brokers are turning to DST specialists to help advise their clients on how to avoid being hit with a large capital gains tax following the sale of their multifamily investment property.
In a nutshell, DST 1031 exchanges allow multifamily sellers to defer the income from the sale of their property by investing in a co-ownership real estate portfolio as outlined in the Internal Revenue Service Revenue Ruling 2004-86. The DST 1031 structure allows a trust to be set up that consists of multiple
the Medicare surcharge and the tax consequences could be devastating. In fact, many investment property owners decide not to sell because of the significant tax implications.
A DST 1031 Over a Straight 1031 Exchange?
At this point, the real estate broker will most likely recommend the seller enter a “1031 exchange”. This strategy is named after section 1031 of the Internal Revenue Code and allows a property owner to defer capital gains taxes on a profitable sale by reinvesting the proceeds into another property of “like kind,” and there is no limit to how many times it can be done. In theory, there could be a successive series of exchanges that defer capital gains taxes indefinitely, which allows an investor’s income to potentially grow tax-free over a long
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