Minimizing capital gains taxes for seller

1031 Exchanges
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Minimizing capital gains taxes for seller

Gabriel Uhl
Member since 2023 · 1 post · 0 votes

Hi all!

I'm in the Kansas City area and have had the dream of getting into home renovation and rentals for several years now and am at a season where I can finally pursue that intentionally. I'm partnering with a friend and we plan to acquire our first property Q1 2024. We're building our team right now and networking. I just heard of someone I'm connected to who owns several multi-family rentals and wants to get out of rentals but doesn't want to get hit by the capital gains taxes from selling them. I'm researching to see what the options are. I've thought of seller financing with installment payments. Also looked into Delaware Statutory Trusts (DST's) but I don't know if she meets the income requirements. If I could find a similar property for her to do a 1031 exchange that may be an option but that defeats the purpose of her getting out of rentals. Maybe she could sell several residential rentals and find a storage facility? Does anyone have any suggestions of how she could sell her rentals and not be penalized on taxes? I think if I can provide a solution for her she may be open to giving me a deal on purchasing one or more of her properties.

Thanks!
Gabe Uhl

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    2y

    @Gabriel Uhl, The 1031 exchange can be into any type of investment real estate including some that would be fairly passive - like managed MF properties, or delaware statutory trusts, or NNN commercial.

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  • Hunter Jones
    Member since 2023 · 3 posts · 0 votes
    2y

    Hi Gabe - For someone to go into a DST they usually need to be "accredited". Generally that means a $1m net worth (excluding primary residence) or income thresholds you are referencing of $200k for a single tax filer or $300k for joint filers over the last 2 years. Sometimes it varies a little by situation depending on how the relinquished property is titled (individually, LLC's, revocable trust's, etc.). Depending on their overall balance sheet (rentals included) it might work for them. Could be a nice option for someone who wants to "be done" but doesn't want to pay the tax bill. DST's are going to have every kind of imaginable asset class that they might be interested in (can do more than 1 and provide broad diversification depending on the size of the exchange) all while being more institutional and hands-off than they are used to.

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  • Graham Craig
    Chicago · Member since 2023 · 11 posts · 2 votes
    2y

    She could certainly sell her rentals and get into DST's with a 1031 exchange. The DST's could be customized with proper ratios of equity and debt to eliminate her taxable portion of the exchange AND the DST (singular or plural) would eliminate her management headache.

    Best, Graham

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  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    2y

    @Gabriel Uhl I am local here in KC and would be happy to help. I am a multifamily broker here in KC and help with 1031 exchanges quite often (hence name of my brokerage). Not sure what your entire goal is but would be happy to talk through it?

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