making 1031 exchange tax free?

[Garry Hoffmann]

I'm an agent in Utah working with a client, and if i remember right there is a way for my client to do the 1031 exchange and put it in a trust or like entity to make it so even after there passing and the children inherit the properties they don't have the capital gains. Maybe I miss heard, but if anyone has more info on this I would be very grateful.

[Matt Devincenzo]

I think there are three distinct pieces here that you allude to...

A 1031 serves to defer capital gains, so if you complete a 1031 you will defer the tax. A 1031 requires reinvestment of the proceeds...which leads to part 2:

When reinvesting for a 1031 it must be 'like kind', which often in rental property for rental property. There are also specific trust vehicles known as 'Delaware Statutory Trusts' (DSTs) that also qualify.

Part three is really not related to 1031 or DSTs specifically, except that the above only serve to defer taxes. Eventually when you sell you either have to complete another 1031 or pay the taxes...unless you die. When you die the property receives a 'step up in basis' which means that the heirs get a new FMV based on today, so if they sell at that point there are no taxes to pay.

So to string it all together if you sell your property and 1031 into another property or a DST you defer your taxes indefinitely. As long as you keep that 1031/DST going until you die then your heirs can receive their inheritance at the new stepped up value and eliminate any past tax obligations that were deferred during your lifetime.