Capital Gains Tax & Exit Strategies
Exit Strategies For Apartment Building Owners
Probably the simplest strategy is to not have one at all and Pay Capital Gains Taxes on the sale of your building. You will pay Federal, State, and Net Investment Income taxes (if applicable) as well as your 25% depreciation recapture. All this can easily add up to as much as 40% of your profit. This is the easy way out, but very costly.
The next option is the 1031 exchange. This is great is may be a good option for those sellers who are not ready to get out of the real estate market. In fact this is a great way to by your up leg property , a bigger, better investment.
Delaware Statutory Trust (DST)
A DST Investments are offered as replacement property for investors seeking to defer their capital gains taxes through the use of a 1031 tax deferred exchange .
You should realy know your stuff when dealing with a DST. The DST property ownership structure allows an investor to own a fractional interest in a professionally managed commercial property along with other investors, as individual owners within a Trust. Each owner receives their percentage share of the cash flow income, tax benefits, and appreciation, if any.
Some pitfalls of a DST:
You may have to hang on to the property for many years.
And for this reason these real estate assets aren’t as easily liquidated. Great for those playing the long-game. Not so much for short term strategies.
No direct control over your investment.
Investors who are accustomed to the control of their assets may be uncomfortable with the DST with 1031 model.
Installment Sale Coupled with a Monetizing Loan
An installment sale is a method in which an asset can be sold for a value, and the payment for asset occurs over an extended period of time. An installment transaction can be combined with a monetization loan.
it is an alternative to the 1031 exchange and other tax planning strategies to defer the gain and depreciation recapture on the sale of a property.
There are many more strategies out there, but these are the most popular. Give me a call and let’s discuss the basics of how this program works.