Real Estate DSTs: A Haven in a 1031 Tax-Change Storm? In the face of the tax policy uncertainty, the question is how to think about current real estate investments and future investment plans.
By Chay Lapin, President of Kay Properties & Investments, LLC
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ashington-watchers, including many of us in the real estate industry, are waiting to see if and how federal policymakers change the tax treatment of capital gains and 1031 like-kind exchanges this year.
the Biden Administration’s proposed budget for the coming fiscal year would significantly curtail them by limiting the amount of capital gains from investment property sales that could be deferred to $500,000 per year for individuals and $1 million per year for married couples.
The capital gains tax rate affects the flow of capital into every investment class, including but not just real estate. Operating companies and operators of hard assets including real estate count on capital and liquidity to be productive. I’m hopeful the current capital gains tax rate will be maintained versus raised as has been proposed.
1031 exchanges allow property investors to defer capital gains and other tax on investment gains when they reinvest the proceeds into other like-kind properties, which means they must be held for investment or business purposes (meaning you cannot 1031-exchange into a home that you will utilize as your primary residence). Today there is no limit on the amount of capital gains from the sale of investment real estate that can be deferred using 1031 exchanges.
Meantime, while no one is suggesting that 1031 exchanges of investment property be eliminated, 22
1031 DST Digest
Should You Sell Investment Property Now? In the face of the tax policy uncertainty, the question is how to think about current real estate investments and future investment plans. First and foremost, the times call for calm. The fact is, real estate has been an attractive alternative investment class and it may continue to be - there are virtually always appealing investment opportunities, be they short or long term. Second, with regard to any change in the capital gains tax rate, it would likely affect all asset classes - not just real estate - so any impact likely would be proportionate, or relatively so. If you’re holding investment property, should you sell? That’s a
