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An Inside Look At Effortless Deferred Sales Trust Programs

February 12, 2016

Selling a business is much more difficult; often the seller will extend the sale over a period of years a traditional instalment sale or unwillingly pay the taxes at the time of sale. It is important to understand that the payment of the capital gain tax to the IRS is done with an “instalment plan” as the grantor receives the payments. However, the 1031 Exchange requires that you acquire one or more like-kind replacement properties in order to defer the payment of your capital gain taxes upon the sale of the real or personal property.  The instalment sale strategy has positive and negative benefits like any other tax deferred or tax exclusion strategy.  Generally, the 1031 Exchange is a better tax deferred strategy for most investors.  What is a Deferred Sales trust A Deferred Sales trust or DST™ is a method that combines several sections of the tax code to defer capital gain taxes due at the time of sale over a Deferred Sales Trust period, even beyond your lifetime. Any such offer may only be made based on review of client's individual financial situation upon request. This capital gains tax deferral tool could save you thousands of dollars, and by having the opportunity to potentially make a profit on the money you would have paid to Uncle Sam in the year of the sale. This last point is always a big surprise to investors when tax time comes around. Guidelines for the Deferred Sales Trust to Qualify Trust Structure: In order for a Deferred Sales Trust to qualify for capital gains tax deferral, it must be considered a bona fide, third party trust with a legitimate, third-party trustee.

Therefore, It Is Very Important That Deferred Sales Trusts Are Established And Operated According To IRS Guidelines And Trust Law.

Once the sale is complete, the trust is funded, and the payments have either been deferred or begun, then the trust funds are invested. Your depreciation recapture is generally recognized and taxable in the year of sale and can not be deferred over the term of the note.  One of the unique benefits of the Deferred Sales Trust is its ability to rescue an investor from capital gains taxes in the event of a failed 1031 or 721 exchanges. The trust pays grantor a steady income stream specified by the grantor. The payments may begin immediately or may be deferred for months or years. It is important to review this strategy with your legal and tax advisers since it is relatively new and there is no IRS guidance at this point in time. If the parties agree, you may terminate the trust and get the cash out. Obviously, this strategy is gaining popularity among those who have highly appreciated assets that will be marketed for sale.

Asset Transfer: In order for the Deferred Sales Trust to shield the owner from capital gains taxes, the owner must not take constructive receipt of any sales proceeds from the disposition of an asset. If the parties agree, you may terminate the trust and get the cash out. How can a Deferred Sales trust benefit a seller? Grantor pays capital gains and ordinary income taxes as he/she receives payments from the trust. The trust then sells the property and the proceeds are now held in the trust. A Deferred Sales trust may be the tax deferral option you've been waiting for. What is a Deferred Sales Trust? The payments usually begin immediately, but the granters may choose to defer payments from the trust as they have other sources of income. The 1031 Exchange is an excellent tool when you wish to defer the payment of your capital gain taxes generated from the sale or disposition of your real property or personal property by reinvesting in replacement property. Depreciation Shelter: Some types of depreciation recapture may be deferred, but any excess accelerated depreciation over the straight line depreciation method cannot be deferred.

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