Options for Deferring Capital Gain Exposure
all of these options involve some sort of exchange, but not all involve direct management of assets, so income generated would be considered to be ‘passive income’.
- The first one is of course, a standard 1031 (IRS) exchange. This would require you to exchange into other real property; that could be vacant land or possibly other types that do not require direct owner oversight. A reverse 1031 exchange is a vehicle in which you can still defer gain in the event you locate your acquired property prior to liquidating your relinquished property.
- The second one is a 721 (IRS) exchange, which allows you to exchange into various forms of REITS.
- Third is called a Deferred Sales Trust. It is disputed in some tax-deferral circles, as not being a valid tool that the IRS accepts. We have no experience with it, so no opinion is rendered.
- Next is referred to as a DST (Delaware Statutory Trust). We have a client who sold several investment properties and exchanged into partial ownership of 12 properties through his DST. He continues to be EXTREMELY happy with his decision in going this direction.
- Fifth is a TIC (Tenants in common). It has similar properties to a DST, but there are pros and cons to each one.