From the local scene to the global market, different kinds of investments have been available for everyone who wishes to maximize his/her wealth. More and more people venture upon these investments as they have been evidently resulting in income for those who become well-versed in the field, those whose investments are handled by intermediaries, and even those who are just starting to learn about it.
Out of all the types of investments we know, one that stands out is real estate investing. Real estate investing is all about financing or purchasing land through cash or leverage for an expected future gain, be it through capital appreciation or rental and commercial income. However, these properties bear with them different tax obligations which can take up most of what you were expecting to gain. With this, a real estate investor must be aware of the different tools and strategies for asset management like the 1031 exchange investment.
Applying for a 1031 exchange is an effective way to defer capital gain taxes and even depreciation recapture taxes when exchanging property or exiting holdings. 1031 allows you to find a like-kind replacement of your sold property to be your new investment. This then establishes the case where your gains can only be recognized later on after your new investment since it will be considered that your capital gains are what you have used for availing these new investments. Thus, taxes are also postponed to recognition since one cannot impose tax payments for an investment that is still ongoing.
1031 exchange investments consist of different possible ways to continue the cycle of your investment. One of these is the Delaware Statutory Trust (DST). Here’s what you need to know about it:
Ownership interests in DST are considered as a like-kind property in the 2004 IRS ruling
This allows it to be used and be qualified for a 1031 exchange.
It functions as a limited partnership
DST is a legal entity that pools funds or properties from different partners who will be having limited liabilities only. These pooled capitals will be utilized for investment purposes. Partners are provided of fractional interest from the holdings of the trust.
Only one or a few will be able to have managerial authority in the trust and its assets
This is one of the benefits of DST. Managerial obligations will only be the responsibility of the trust’s selected master partner/s. An investment management role can be tedious for different investors. This has been one of the causes of why people tend to forego and exchange their previous property or investment.
DST exposes investors to different learning and investment possibilities
Investors are given the opportunity to experience different markets and types of real estate investments. From being an owner of land property, you will be able to venture on investing in residential properties and more. For those who are yet to fully grasp the managerial aspects of real estate investment, it is ideal for them to opt for DSTs as they first become passive investors. Passive investors in DSTs observe and analyze first the investing environment they are in and learn managerial skills from the trust’s master partner/s.