1031 Exchanges
A 1031 exchange, also known as a ‘like-kind exchange’ is a type of exchange that allows you as an investor to sell a property and use the proceeds to purchase a similar property without cashing out or recognizing a taxable capital gain. This form of tax break is a common strategy used by investors who want to diversify their portfolios or move their investments to a different location.
Delaware Statutory Trusts
A Delaware Statutory Trust or DST is an innovation of the 1031 exchange solution. DSTs are trust entities that hold ownership in a property and allows you to pool your resources with other investors, where each investor owns a beneficial interest in the trust that holds the property.
This entitles you to a share in the income and appreciation of the DST’s assets and is a great way to diversify your investments. When you sell your interest in a DST, you can defer paying capital gains taxes by using the proceeds to purchase another interest in a DST.
Opportunity Zones
A third way of deferring capital gains taxes is by using opportunity zones. These are essentially economic development tools used by the government to encourage investments in low-income communities. Since these zones are designed to spur economic growth and job creation in distressed areas, investors are given tax benefits.
Final Thoughts
There are numerous ways to defer capital gains taxes and maximize your ROI as a real estate investor. Understanding and mastering these methods can help you grow your wealth more effectively.
Since each method has its own set of rules and procedures, be sure to consult with reliable tax professionals to find a strategy tailored to your portfolio.
