You’re a real estate investor. You own commercial real estate with all of its rights and responsibilities. But you want to create income without having to work; that’s retirement.
Some tactics that may 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, and redeploy gains through an IRC §1031 like-kind exchange that provides passive income from a professionally managed property as well as diversification of your portfolio. In this article we'll take a closer look at these real estate investing tactics. (For related reading, see: Create a Tax-Efficiency Team With Tax Professionals.)
A real estate market cycle lasts about 10-12 years. As an example, in the greater Seattle area where I live, we are at or near the top of the cycle. Consider the cycle characteristics: seller’s market, demand, rising prices. Your risk tolerance, time horizon, and opportunities factor into a decision to sell. As a commercial real estate professional in Seattle for more than 30 years, I recognize that now is at or near the top of our cycle. If you are considering selling, it may be time.
Capital Gains Tax Deferral 1031 Like-Kind Exchange
You are re-evaluating how real estate fits into your portfolio and you know if you don’t take advantage of the IRC §1031 like-kind exchange, a big 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?
A Viable Alternative
A Delaware Statutory Trust (DST) offers opportunities to keep your gains and diversify real estate holdings. A DST is one alternative for replacement property for accredited investors seeking to defer capital gains taxes through the use of a section §1031 tax-deferred, like-kind exchange. In a DST, an investor owns a fractional interest in a large, institution-quality, professionally-managed commercial property such as retail, housing, or industrial properties in many geographical locations. The DST may provide cash flow income, tax benefits, and appreciation of the property.
A DST also allows you to redeploy your money. You keep it working for you. It allows real estate investors to employ the §1031 exchange, thereby paying capital gains taxes at a more opportune time.
How to Deal With the Complexity
Complexity is the enemy of execution: inertia, decision fatigue, and less complicated alternatives. This is why building a relationship with a proven, trusted financial advisor who can walk you through your investment options is so important. An experienced, reliable professional will find the most tax-efficient strategies to help you keep more of what you make to reach your financial goals. (For related reading, see: Why Investors Need to Focus on the Long Term.)
IREXA Financial Services / Wealth Strategies collaborates with CPAs, attorneys, and other tax planning professionals to assist clients with tax mitigation strategies. IREXA, SANDLAPPER Securities, and Sandlapper Wealth Management are not tax professionals or attorneys. IREXA only provides client tax mitigation strategies through, and with the approval of our client’s professional counsel.
Securities are offered through SANDLAPPER Securities, LLC (SLS), member FINRA/SIPC. Advisory services offered through Sandlapper Wealth Management LLC (SLS-WM) an SEC registered investment advisor, 800 East North St, 2nd Floor, Greenville, SC 29601, 864.679.4701. IREXA is unaffiliated with SANDLAPPER Securities, LLC and Sandlapper Wealth Management LLC.