Defer Tax on Gain
You own commercial real estate with all of its rights and responsibilities. Perhaps you want to cash in on the equity you have built up in the last decade or you are through dealing with tenants. You’re ready to create income without having to work; that’s retirement. Some tactics that may help maximize your return are:
- get out of the market as close to the top of the cycle as you can,
- defer taxes on capital gains,
- redeploy gains through an IRC §1031 Like Kind exchange into property that provides passive income from a professionally managed property as well as diversification of your portfolio.
A real estate market cycle lasts about 10-12 years. Consider the cycle characteristics: seller’s market, demand is high, inventory is low creating bidding wars and rising prices. Your risk tolerance, time horizon, and opportunities factor into a decision to sell. As a commercial real estate professional in Seattle for over 30 years, I recognize that now is at or near the top of our cycle. If you are considering selling, it may be time.
If you are re-evaluating how real estate fits into your portfolio, you may know if you don’t take advantage of the 1031 exchange, a tax bill may be due. But how do you find the same kind of property with the same level of debt to equity? And, how do you diversify if you have to buy the same kind of property? The rules seem daunting.
Let a Management Group Manage Your Property
A Delaware Statutory Trust (DST) offers opportunities to convert the capital gains from your commercial property sale and diversify real estate holdings by purchasing a beneficial interest in one or more qualifying properties with similar equity to debt ratios (LTV). A DST is an alternative for accredited investors seeking to defer capital gains taxes through the use of a IRC § 1031 tax-deferred, like kind exchange. Access our 1031 DST Properties here.
In a DST, investors own a fractional interest in one or many institutional quality, professionally managed, commercial properties, such as retail malls, multi-family housing, and industrial properties in diverse geographical locations. The DST may provide cash flow income, tax benefits, appreciation, and reduced risk through diversification. A DST allows you to redeploy your money. You keep your hard-earned money working for you.
Please note that tenant vacancies, competition from similar properties, or potential environmental conditions at the property may negatively impact rents and cash flows. There is often no secondary market for an investor’s interest in alternative investments, including real estate investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Purchaser cedes the decision making to the managing company. The DST cannot effectively refinance if the need arises.
Experienced, Holistic Financial Advice
Investing can seem complicated and the tax code can be confusing. That is why building a relationship with an experienced, seasoned financial advisor who understands the tax-saving benefits of investing is so important. Your financial advisor should be working closely with your CPA, Qualified Intermediary and Attorney to help get the maximum potential benefit of all your financial professionals. Experienced, reliable professionals will find tax-efficient strategies that may enable you to keep more of what you make to help you reach your financial goals.
Robert L. Boggess, CCIM
IREXA® Financial Services / Wealth Strategies
 Alternative investment products, including real estate investments, are highly speculative and involve a high degree of risk and volatility, and may not be suitable for all investors. You may lose all or a substantial amount of your investment.
Alternative investments often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any income from real estate properties, and in some cases the underlying investments are not transparent and are known only to the investment manager.
IREXA® Financial Services / Wealth Strategies collaborates with CPAs, attorneys, and other tax planning professionals to assist clients with tax mitigation strategies. IREXA® and Great Point Capital, LLC are not tax professionals or attorneys. IREXA® only provides client tax mitigation strategies through, and with the approval of, the client’s professional counsel.
Investments in DST properties are made to Accredited Investors only via Private Placement Memorandum (“PPM”). Prospective investors must read and understand the PPM in its entirety, including all risks which include but are not limited to the possibility of complete loss of principal investment. Investments, income and success are never guaranteed.
DSTs are illiquid in nature and investors may not be able to liquidate their position prior to completion of the program. The DST structure has been recognized as a suitable structure with the IRS for the use as 1031 Replacement Property. The DST has certain limitations in and of itself and the use of DSTs to hold real property may limit the ability to properly manage underlying assets while continuing to preserve an investor’s tax deferrals. Prospective investors should consult with their tax professionals before investing. Alternative investments often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager.
Fluctuations in the value of the assets that are the subject of any investment are to be expected. Tenant vacancies, competition from similar properties, or potential environmental conditions at the property may negatively impact rents and cash flows. Additional risks exist due to a variety of factors, including, but not limited to, leverage, market risks, business risks, management and such other risks more particularly described in the related offering materials. There is a potential for loss of part or ALL of the investment capital, and each investor should understand that all capital invested may be lost. Investors must be able to afford the loss of their entire investment. Investors should only consider these investments if they have no need for liquidity and can bear the risk of losing their entire investment.
Section 1031 defines like-kind as real estate that is held for productive use in a trade or business or for investment. Section 1031 defers tax when this real estate is exchanged in a properly structured 1031 exchange for like-kind real estate that continues to be held for productive use in a trade or business or for investment. Section 1031 gives a taxpayer who sells business or investment real estate 45 calendar days from the closing to identify up to three (and under certain circumstances four or more) like-kind replacement real estate properties. The replacement must be acquired and the 1031 exchange completed by the earlier of 180 calendar days or the due date (with extensions) of the taxpayer’s return.
Securities offered through Great Point Capital, LLC, Member /SIPC, 200 W Jackson Blvd #1000, Chicago, IL 60606, telephone (312) 356-4872. IREXA® Financial Services / Wealth Strategies is not affiliated with Great Point Capital, LLC.