How to sell, with minimum tax, and then access the equity...?

Question

What strategies work best to minimize taxes when selling while also creating access to the equity? I considered doing a wrap loan but splitting up the capital gains into multiple years has relatively little tax benefit and adds substantial risk. (Though the arbitrage is very attractive)

I'm now considering a 1031 exchange, but then (correct me if I'm wrong) I'd have to get a new loan to cover the loan I'm leaving behind... (since the purchase price of the new property would need to be larger than the sales price of the relinquished property) and I still don't get access to the equity unless I do a cash-out refi later.

Does it make sense to buy a DST for now? What about a "zero"? Something else?

Dave Foster · Answer

Account Closed You are correct that if you want to defer all tax you would have to purchase at least as much as you sell, but if you don't want to do that there could still be some benefit to doing a 1031. You can purchase less than you sell and you can take cash out if you want to, you would simply have to pay tax on the difference. So if you sell for 400k and only end up spending 300k after the loan is paid off than you would just be taxed on the 100k difference, everything else would still be sheltered.

Technically you don't have to replace your mortgage with another one, you could use your own funds to cover the difference in order to meet the reinvestment requirements. Most people don't have that kind of cash on hand though so a partial exchange is always an option.

How to sell, with minimum tax, and then access the equity...?

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