All Forum Posts by: Jon Taylor

Based on what you described the LLC is likely the tax-payer on title. *(If the LLC distributes K-1s to the managers, this confirms my assumption). In this scenario, each member doesn't actually own real estate, they own a business (that owns real estate).
If that is the case you have two options: 

1) The LLC performs the 1031 exchange and continues to achieve the goals of the managers through changes or details added to the operating agreement and subsequently consider dissolving the LLC.

2) You dissolve the LLC and reform as Tenants in Common *prior* to the sale of the property. This allows each "member" to have autonomy when the property is sold. It's wise to do this well before you sell the property.

@Tyler, when individually appropriate, for investors who have a need for immediate cash, we've also refinanced the property modestly (20-30% LTV) to provide mom/dad with the cash to bridge the two-year gap.

It's hard to ignore the benefit that any tax saved is basically a wealth transfer gift to the beneficiaries. 

If you, (or anyone) would ever want me to model out a 1,3,5 year scenario with multiple options, that's a routine part of our planning process. The DST isn't a necessary part of that strategy either. I'll DM you.

I want to share an application of this strategy that can help when moving parents into a long-term care facility, particularly in high-value real estate markets like California and Hawaii.

Here’s a simplified plan:

1. 1. Rent Out Their Home: Prepare your parents' home for the rental market to generate income.
2. 2. Utilize the 121 Exemption: Use the $250k (single) or $500k (married) tax exemption after renting for two years to supplement long-term care costs.
3. 3. Perform a 1031 Exchange: Use a 1031 exchange to defer capital gains taxes by investing in a replacement property.
4. 4. Consider a DST: A Delaware Statutory Trust (DST) is a tax-efficient, estate-planning friendly option for accredited investors. It allows for passive investment and can be easily divided among beneficiaries after your parents pass away, helping to avoid disputes during asset distribution.

This strategy helps manage long-term care costs and simplifies estate planning, ensuring a smoother transition for beneficiaries.

@Ana Vhan - The IRS needs to see the same *taxpayer* on both sides of the exchange.

If you file jointly, and your trust is disregarded, you should be able to take title in the name of the trust.

Your tax professional can confirm, and your QI can support that decision.

@Alberto Cioni, 

You want to make sure you really understand the fair market value of the real estate you are purchasing at your price - which includes all fees.

Today's generation of DSTs has begun hiding fees inside of acquisition pricing, so without a commercial underwriting comp study, it's difficult to understand whether the price is fair.

@Dan T. Sponsor track records are readily available. Your financial advisor has the historical information from every DST sponsor.

I am not a QI soliciting business, but have had customer experiences with all of the big ones out there.

DM me if you want my perspective.

One of my very best experiences has been with a QI based on Florida.

Two major personal questions to get more accurate.

I’ll DM you

@John McKee The question is... how long will it take you, earning that double cash flow to claw back your tax loss. It's a calculation worth doing, because that is the basis for the value of the 1031 exchange. 

@Norman Schultz has the right idea. I'd offset gain with loss to liquidate RE all day, every day, regardless of the market. You get new cash to re-invest in new basis in RE in your own timeline, or you can reposition the investmetn into equities.

BUT, what to do if tax bill is 40-60% of your equity after you pay the loan, and you don't have losses to offset that gain? That's a hard question to answer. 

I view DSTs simply as a property with an address, a tenant, a lease, and a price - subject to the same performance conditions of the market, regardless of the fact that it's granted to a simple Trust for fractional investor participation. Some properties are worth owning at a certain price. Many are not. I think every 1031 buyer (irrelevant to DSTs) has a difficult decision in the Q1-2024 market. "What can I buy within 45 days that will protect my capital, and provide me with a predictable return?" 

@Matt W.I have a 1031 vs no 1031 calculator model that I built that shows me the IRR breakeven to help determine the difference in risk to achieve the same quantifiable return. It's not uncommon to see a 5% IRR using a 1031 produce the exact same income and capital as a 15-20% IRR outside of the 1031, depending on your tax situation. I'd encourage you to do that work for your own scenario as a step 1.

DM me if you want help modeling that out for your own tax situation.