Anyone can defer capital gains taxes indefinitely using a Deferred Sales Trust.
Your first question might be, “what is a Deferred Sales Trust?” Good question!
First of all, a Deferred Sales Trust (aka, DST), is the intent of Internal Revenue Code Sec. 453. However, when reading Sec. 453 one will not find the words Deferred Sales Trust within the code. What one will find is Installment Sale Method and Installment Sale. The IRC defines an installment sale as “…a sale of property where you receive at least one payment after the tax year of the sale.” IRS Form 6252 is used to file installment sale income, disposition, gain, all things related to the installment sale.
Additionally, with the Private Letter Ruling (PLR) 200944002 issued in 2009, the IRS validated the Deferred Sales Trust as a compliment to, or alternative for, a 1031 exchange.
Under normal circumstances there are 4 ways to be paid when selling a property.
Each has it’s advantages and disadvantages. Some disadvantages include:
There is, however, another option brokers and Commercial Real Estate (CRE) professionals need to be aware of. The Deferred Sales Trust. The DST bridges the gap between selling the property and sheltering the capital gains from it. The DST defers capital gains and other taxation on the sale. This deferral can be for as long as the seller chooses. Literally, the tax consequences of the sale can be deferred indefinitely. While Sec. 453 applies to any appreciable asset (e.g. jewelry, securities, livestock, timber, real estate, etc.), it is best employed when applied to one’s primary residence, a vacation home, or a commercial property. Commercial properties can include residential rental property like houses, duplexes, and apartment buildings. Commercial real estate of any kind is the perfect application for a DST.
The DST enhances all 4 methods of one’s property sale. Some advantages include:
Regardless of one’s motivation for selling appreciable assets, the DST can provide peace of mind. The DST can convert appreciated property of any kind, or a business that a person literally could not afford to sell, into an income stream that offers tax deferral and estate liquidity. The DST shelters the proceeds of the sale indefinitely, allows for time to thoughtfully consider how your money should now work for you, and ultimately gives you total control. In today's economy, what more could you ask for?
So, sell your asset and pay capital gains and other associated taxes today, or defer capital gains with the Deferred Sales Trust.
My vote? Let the IRS wait for theirs.
For more information about the Deferred Sales Trust, contact us at: