If your 1031 exchange relinquished property closed for $1 million, in total all your replacement properties should be at least $1 million if you want to defer all of your capital gains taxes. If your replacement property is worth $900K, you’re going to recognize gains on that $100,000 buy down in value. In this scenario, you could purchase one replacement property for $900K, and a second replacement property for $110K. Between the two of those properties, you have a greater value than your relinquished property and would be able to defer your capital gains taxes in a 1031 exchange.
This is where a DST can be used as a sort of “gap filler” because you can tailor that purchase to fit your needs. If it’s a leveraged DST, you’re not paying a dollar for every dollar of value – you’re getting some credit for the underlying debt. As a result, you may be paying out less than you would pay out in taxes on the boot if you were to buy down. If you buy an 85% leveraged DST, that’s only going to cost you 15 cents on the dollar to make up that gap. But the effective taxes on a $100K buy down might be almost 50%. What would you rather do – give 50 cents on the dollar to the state of Minnesota and federal government, or instead give 15 cents on the dollar to your stock broker who is going to put that money in a security that might be worth something some day? The money that you pay out in taxes will never come back to you. The money that you give to your stock broker to put in a DST probably will.
CPEC1031, LLC – An Experienced 1031 Exchange Company
CPEC1031, LLC is an experienced 1031 exchange company with decades of time working in the 1031 exchange industry. Our team facilitated like-kind exchange transactions in Minnesota where we are based, and across the entire United States. No matter where your 1031 property is located, we can assist you in deferring your capital gains taxes. Reach out to our team of 1031 exchange professionals today to see how we can help you through the many details of your next 1031 exchange. We are located in the heart of downtown Minneapolis.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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