How Real Estate Investors Can Leverage A Deferred Sales Trust

Most Real Estate Investors have heard of the 1031 Exchange.

Did you know there are 17 different tax minimization solutions for reducing, deferring, or completely eliminating the tax bill on the sale of a Primary Residence, Second Home, or Investment Property.

In this series of posts we will discuss the 17 Real Estate Tax Minimization Options available to you in five categories. The third category is the Deferred Sales Trust with five options to choose from.

Category 3: Deferred Sales Trust

The Deferred Sales Trust is our most powerful tax minimization option for the sale of real estate, businesses, stocks, bonds, crypto, cars, artwork, or almost anything with a capital gain.

What is a Deferred Sales Trust?

The Deferred Sales Trust combines IRC 453 of the US tax code with trust law to create an installment sale to trust. This proprietary legal structure can defer all capital gains for a set time or indefinitely, while providing an agreed upon income stream.

Therefore, the Deferred Sales Trust is a legal contract between the seller (the note holder) and a third-party trustee (the Trustee) in which the seller (you) sells a primary residence, second home, investment property, business, stocks, crypto, or almost any appreciated asset that has a capital gain in exchange for a promissory note.

The trust funds are deposited in a custodial account and invested as per the terms of the note and an accompanying Investment Plan Summary or IPS.

Unlike other trust or charitable solutions, the money in this trust is your money. You can demand it at anytime, but any money exiting the trust will pay taxes. Similar to an IRA, any money in the trust can grow tax free.

How Money Is Invested?

The Deferred Sales Trust is very flexible. The terms of the note can be changed, unlike other tax minimization options. Income can be taken each year or partially/fully deferred without taxation(specific rules apply).

The trust can invest in almost anything a real person can including securities, notes, and alternatives. In addition, the note holder can direct the trust to invest in investment property or business controlled by the note holder (specific rules apply).

We have summarized the investment strategy categories below. You will be able to choose a specific strategy from multiple options.

1.    Cash Out Strategies

If your goal is to cash out, you need a way to protect yourself from paying 25% to 50% or more in capital gains taxes and still make investments with good returns and liquidity.

Now you can legally defer the capital gains taxes on up to 100% of your transaction’s proceeds and generate a dependable income stream for retirement, investment, charity, or whatever you desire.

You can start taking income immediately or defer pays or ramp up the income anyway you like. The key to tax deferral is to not change the note terms or payment amounts more than once per year.

2.    Vulture Fund Strategies

If you’re a real estate investor, you’ve probably ran into the situation where now is a great time to sell but a bad time to buy. This makes traditional tax deferral methods like the 1031Exchange a problem.

The 1031 Exchange requires a real estate investor to identify their potential replacement property in 45 days and close the purchase transaction in 180 days or pay the tax.

This means you only have 180 days to find and close on the right property. This restriction can be problematic if inventories are low or your deal falls through (15% of 1031 Exchanges fail).

Now you’re stuck with either paying 25% to 50% of your hard earned money in taxes or buying a sub-optimal property at too high a price or in a bad location.

Wouldn’t it be wonderful if you could sell your property now, defer the capital gains taxes owed, and earn income from your money while you wait for the right opportunity to present itself?

With our Vulture Fund Strategy, you’ll have tax deferred cash available to buy that new opportunity on your timeline, pay no tax on the purchase capital, and still earn income off any money not used.

*** Key Point *** This strategy also allows you to reset the depreciation schedule since the cash from the Deferred Sales Trust is not encumbered by the rules of a 1031 Exchange.

3.    Downsizing Strategies

If your strategy is to Downsize and your using traditional tax deferral options like the 1031 Exchange, you’re facing two major obstacles to reaching your goals. 1) You need to find the downsized investment property within the 45 identification window and close the transaction in 180 days or less to avoid paying capital gains taxes. 2) You’ll need to pay taxes on any gains above the price of the newly purchased property.

What can you do to defer paying capital gains taxes on 100% of the proceeds from this transaction and invest the remaining money.

One of our many downsizing strategies allows you to take tax free basis out of your property prior to sale, purchase your downsized property, pay off this loan in the relinquished property sales escrow, and defer taxes on the remaining cash proceeds from the sale of your property.

No 1031 Exchange and no 180 day window to work against.

4.    Estate Planning and Legacy Building Strategies

Let’s say you decide to sell one of your larger investment properties. You want to create an income stream so you can slow down, but your wife wants to save the money to leave a legacy for your children or charity. What can you do?

With the Deferred Sales Trust, you can do both. You can have an income stream and a legacy you can pass on to your heirs or charity. This is just one of the many scenarios that are possible.

You can structure the trust to exist outside of your estate (specific rules apply). If your trust is over $10million, we have a number of options buy life insurance or apply special rules that will super charge your trust’s growth while eliminating Estate taxes for your heirs.

5.     Combining Assets or Crossing Asset Types

Let’s say you have five investment properties and you want to sell three of them to invest in a business venture. By leveraging a Deferred Sales Trust, you can sell each property on its own timeline and have the funds flow into the trust. You now take 70% to 80% of the proceeds from all three sales to use as an investment in a business venture, pay no taxes, and still earn income on the remaining money in the trust.

Alternatively ,let’s say you are selling a business or crypto and want to invest in real estate. You can do the exact same thing, sell the crypto or business and have the funds flow into the trust instead of into your bank account, earn income on the money while you look for good real estate investments. Once you’re ready to invest, you can take up to 70% to 80% of the funds from the trust and have cash to invest with (our vulture fund strategy).

Or, let’s say you have a Primary Residence in California and want to move to Georgia to be closer to friends and family. You own a home worth $1.5 Million with a $500,000 basis and no debt. We can secure a loan on a $500,000 basis so you immediately get $500k in tax free cash and go buy your new home in GA. In the meantime, we sell your home in CA, we pay off the loan in escrow and the remaining $1 Million dollars goes into a Deferred Sales Trust with a 6% note rate. You now earn $60,000 more per year living in your paid off home in GA.

This is just one of many possible solutions using a Deferred Sales Trust to sell your home and pay no taxes.

If you'd like to pay less in taxes, schedule a complimentary consultation with a Tax Strategist at DeferTax.com today! Call 877-829-7927 or book an appointment here…

Summary,

In the hands of an expert, the Deferred Sales Trust is a powerful tool to leverage when making real estate investment, estate planning, or exit decisions.

These are complex strategies and should be explored with the help of an expert who places your best interests first. Let’s face it, if someone has one or two options, they are not a tax strategist. They are a salesman trying to sell you their product.

We have over 40 tax minimization options on our platform. We are nationwide educators and keynote speakers on Tax Minimization. We are also real estate investors, business owners, homeowners, and high income earners. We use the strategies we recommend!

Once you pick the right strategy that is right for you, we connect you with our network of vetted providers that are “best in class” in the industry. How do we know that? We use them ourselves. You can work with one of them or someone else. It is entirely up to you.

I hope you found this document informative. We have more detailed content and videos on this tax strategy at DeferTax University. Click hereto learn more.

Our exploration of tax minimization will continue with Category 4, the Qualified Opportunity Zone in our next post.

Our website, StartAnExchange.com The easiest place on the internet to Start an Exchange, has more information and educational materials on the 1031 Exchange and more ways to save when exiting an exchange.

Our website, DeferTax.com, has more information and educational materials on over 40 tax minimization options for a primary residence, second home, investment property, business, stocks, crypto, and ordinary income tax reduction.

If you'd like to pay less in taxes, schedule a complimentary consultation with a Tax Strategist at DeferTax.com today! Call 877-829-7927 or book an appointment here…

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