Some states, for example, California, have just declared that these types of installment sale arrangements do not qualify for deferral recognition under IRS tax code 453 or IRC 1031.1 For this reason, due diligence with your accountant and choosing a good third-party trust agent is especially important.
How does a deferred sales trust work?
Deferred sales trusts work with Internal Revenue Code 453, which is a tax law that prevents a taxpayer from having to pay taxes on money they haven’t yet received on an installment sale. The trust then sells the real estate to the buyer, and the funds are placed in the trust without paying taxes on the capital gains.
Why are Deferred Sales Trusts good for estate planning?
Tax strategists are buzzing more and more about Deferred Sales Trusts as flexible alternatives to a 1031 exchange and valuable estate planning tools. A DST could defer capital gains tax obligations indefinitely, while producing cash flow, on the sale of any appreciated asset, not just real property.
How is a deferred sales Trust different from a 1031 exchange?
Unlike a 1031 exchange, the seller has more investment options with a Deferred Sales Trust. A 1031 exchange restricts the seller to like-kind property, which is typically limited to real estate, while a Deferred Sales Trust can be used to acquire assets or financial instruments that are disallowed by other capital gain deferral methods.
Who is the founder of deferred sales Trust?
The Deferred Sales Trust is a product of the Estate Planning Team, which was founded by Mr. Binkele and attorney CPA Todd Campbell. The concept is a lot less exciting as he explains it. Suppose you are planning to sell a highly appreciated asset and have a buyer lined up.
Do you pay capital gains on a deferred sales Trust?
The capital gains tax on the sale of the investment real estate is deferred; instead, you incur capital gains tax liability as you receive principal payments from the trust. As with any kind of tax-deferral investment, the Internal Revenue Service (IRS) has necessary qualifications for the Deferred Sales Trust. Independence.
