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Updated 10 months ago on . Most recent reply

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DJ Brooks
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Deferring taxes if 1031 doesn't work

DJ Brooks
Posted

I have a tax question. I have a financial advisor friend who said he can defer taxes (similar to 1031) from real estate proceeds into a charitable remainder trust or CRT. First, does anyone know if that is true? Now if it is true, my 2nd question is this: Can partial proceeds be used in a 1031 tax exchange and the remaining fund the CRT? For example, say I am going to 1031 exchange 200k into 2 properties to defer my taxes, each being 100k of proceeds, but then 1 sale fell out last minute. Then instead of paying capital gains tax on the remaining 100k, I'd roll it into a CRT in order to defer taxes. Has anyone heard of this being done? Or does anyone have knowledge on why this wouldn't work? Please advise. Thanks for reading! 

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Dave Foster
#1 1031 Exchanges Contributor
  • Qualified Intermediary for 1031 Exchanges
  • St. Petersburg, FL
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Dave Foster
#1 1031 Exchanges Contributor
  • Qualified Intermediary for 1031 Exchanges
  • St. Petersburg, FL
Replied

@DJ Brooks,  My sentiments exactly :). A CRT is great if you have a charity you really want to support.  But a CRT simply to lower your tax bill will still end up with the bulk of the benefit going to the charity not you.

These trusts are basically large properties in all different sectors that are owned in a trust structure originating in ...wait for it...Delaware.  Hence the name Delaware Statutory Trust.  The only magic is that in 2004 the IRS formally made ownership of a membership interest in a Delaware Statutory Trust the same thing as owning the real estate itself.  So it qualifies for 1031 treatment.  You're a fractional and passive owner of a large commercial asset.  

I just sent you a colleague request if you'd like to discuss further.

  • Dave Foster
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