If you’ve arrived here on our official website, you most likely have some kind of interest in a 1031 Exchange Delaware Statutory Trust (DST), in an effort to defer costly capital gains taxes. Our main service, after all, is helping real-estate investors such as yourself to invest in the best DSTs that will provide the greatest returns for years to come.
But if there’s one thing we know about 1031 DSTs, it’s not as simple as choosing your commercial property, getting the tax deferral, and calling it a day. While 1031 DST properties typically produce a healthy amount of income with minimal effort on your part, are you thinking about the future? More specifically, are you thinking about what you’ll be leaving to your heirs?
If you want to take care of your loved ones after you pass, you’ll have to make the right choices regarding your 1031 DST property. In this blog post, we’ll take a look at how you can leverage your 1031 DST commercial property to leave your heirs with assets and liabilities.
Swap Till You Drop
While there are many benefits to a 1031 Exchange DST, the most enticing one is deferring your capital gains taxes. Anyone who has invested in real-estate knows how much of a headache these can be, so it’s pretty great being able to transfer your property ownership without having to deal with that massive expense. But the government never forgets, and you can bet that you’ll owe those capital gains taxes the second you let go of your 1031 Exchange DST property.
So, how do you gain the benefits of real estate investment, defer your capital gains taxes, AND leave your heirs with assets instead of liabilities? The answer is simple: swap till you drop.
Yes, that’s exactly what it sounds like. If you’re itching to move on to a new investment, don’t sell your ownership within your DST. Instead, swap to some new real estate. By continually shifting to new properties, you can indefinitely avoid paying those capital gains taxes. The best part? The capital gains taxes aren’t transferred to your heirs, which means that they’re off the hook as long as you own the exchanged real estate when you pass.
By “swapping till you drop,” you’ll enjoy a steady stream of real estate investment income up until the very end, and then you can rest easy knowing you’ve left your heirs with a significant advantage.
What Happens Next?
You may not be around to see how your heirs manage their inherited assets, but it’s still important to know what happens, so that you can make the most prudent financial decisions and help them to understand what awaits them once they’re on their own.
The first thing you need to know is that your heirs will receive a step-up in cost basis equal to fair market value at the time of your death. In other words, they will “acquire” the property at the value that it’s worth, not what you originally paid for it. This is important, because that’s the number that’s used if your heir decides to sell the property.
Let’s consider a hypothetical example to clear all this up.
Suppose that you bought a property five years ago for $100,000. Let’s also imagine that the property was worth $400,000 at the time of your death. If you were leaving everything to your son, he would have the opportunity to sell. But without a step-up in cost basis, he’d be selling it based on the original value that it was worth when you bought it. So, if he managed to sell it for $550,000, he’d be looking at capital gains taxes on $450,000. Ouch!
However, with a step-up in cost basis, the value of the property when you acquired it is irrelevant. Instead, your son would pay taxes based on the market value of the property when he acquired it (your death). So if we again assume that he sold it for $550,000, the capital gains taxes would only be $150,000. And, of course, he would have the option to defer this cost by reinvesting the money into like-kind real estate via a 1031 Exchange 1031 DST.
The most important aspect of this equation is the time of ownership. It may seem easier to sign on your heir as a joint owner of the property, but if you do, they will be liable to the original market value. For them to reap the gain step-up in cost basis, the real estate ownership must be passed on after the original owner has passed away.
That’s why it pays to work with real estate investment professionals and advisers such as our team at Archer Investors. Without knowing important details such as this, you might make the choice that seems the easiest, only for it to end up being a net negative for the heir.
Finding the Best 1031 Exchange DST Commercial Properties
With all that being said, it’s pretty clear that “swapping till you drop” is a no-brainer. But obviously, it’s something that’s much easier said than done, and that’s why we’re here at Archer Investors. We’re connected with a vast portfolio of commercial properties such as multifamily apartment communities, office buildings, assisted living, student housing, and more. And we don’t just work with any property we can find — every single one is vetted through an extensive checklist to ensure that it’s a viable and financially-sound investment.
By working with us, we can connect you with the most risk-free properties on the market, and you can gain an increase in net monthly cash flow without the inconveniences of managing a property yourself. By investing in the right commercial properties, you can not only provide lasting benefits for a lifetime, but also for your heirs.
At Archer Investors, we work with investors such as yourself on a regular basis, and we have continually provided long-lasting results. You don’t even have to take our word for it — check out our testimonials to see what various clients have said about our services! Contact us today to get started.