The Difference Between a Deferred Sales Trust and a 1031 Exchange

[Brett P Swarts]

Ricardo Matos:

Can you elaborate, for our listeners, what a 1031 is? If it fails, what is the difference and what is the benefit behind it?

Brett Swarts:

Great question. So 1031 is part of that first category, blockbuster or transactional exit planning. It's not really even an exit plan. It's more of a continuity strategy where you're selling like kinda investment, real estate, for another lifetime investment, real estate, or a business for like kind of business. Although most business owners I meet, never do 1031s with business because there's just too complicated, okay. But essentially, you can sell something you can defer tax. Here are the challenges with the 1031. This is why it's a transactional tax deferral strategy versus transformational. I call it the shotgun wedding recording here we have those friends who got married real fast, they met somebody who fell in love within 45 days, got engaged, and got married in 180 days, I have those friends. Some of those marriages don't work out so well, right, because it's like this forced shotgun quick decisions. And that's what 1031 forces you to do. You see, you have to identify within 45 days, that like-kind property you're going to buy you have to get engaged to it, put it on your list, and then you have to close on it and marry it within 180 days. Not good Ricardo, our parents taught us to sell high and buy low. They teach you to sell high and shotgun weddings into 180-day later deal, right. That's what happened in ‘06, ‘05, people were doing the shotgun weddings, overpaying for properties. Some of them lost everything. So I was going through my journey of trying to survive and making the business. My clients were also going through a similar journey just trying to hold on to what they had made, not to the banks. And the number one thing we identified as the biggest challenge to this was the capital gains tax. By the way, the 1031 because they were buying for equal or greater value. With more debt. They felt trapped Ricardo they didn't want to buy they knew it was a seller's market into the deferred sales, trust Netflix, you can park the funds on the sidelines and wait for as long as you want.

You never have to buy real estate ever again, Ricardo, if you don't want to face the toilets, trash, and liability. In fact, you can put it in stocks, bonds, mutual funds, or other business ventures that someone else is managing and operating. You can wait and not have to have any debt. And that becomes transformational. Why? Because it frees up your time. And when time is your friend, guess what you can make better decisions. When time is not your friend. You're stuck swimming in what's called a Red Ocean. What's the red ocean, Ricardo? It's where all the sharks are famous for all the blood in the water to everyone's chasing all the jellyfish you want to be in the blue ocean, where it's calm, diversify, and the Caribbean where you know you're making a good deal and it's a good time to buy. Right? So with COVID-19, we think right now is the best time to sell, to get on the sidelines, to get out of debt to get diversified. Then just to be patient. Let all of the other chaos and madness go on and then buy when it makes sense for you. So, that's the power of the Deferred Sales Trust.

Learn more about Deferred Sales Trust
Visit: www.capitalgainstaxsolutions.com