All Forum Posts by: Kat Hughes

@Kat Hughes, Been noodling this since we talked. And I realize that DSTs are different animals than regular revocable living trusts. Most DSTs will file a tax return and you will get a 1065 partnership report to file on your tax return. But they have still been blessed by the IRS to be the equivalent of direct ownership for purposes of 1031. Your DST was simply set up to own the property because it is in CA and the Franchise tax board is ruthless about charging for LLCs. The primary side of things might be different.

But when you just said it is still reported on your personal tax return that tells me that it might be a disregarded entity. Meaning that the IRS looks through the DST structure and sees that you are the real taxpayer for the property. And if you're the real taxpayer for the property and the property has been reported on your tax return for more than the 2/5 years then it doesn't matter whose name the deed is in. The same tax return/taxpayer has been reporting it and living in it . It should qualify. You could sell as the DST, or you could quitclaim and sell as yourself. It doesn't change the taxpayer. It doesn't change how long that taxpayer has lived in the property. It certainly doesn't change your ability to do a 1031 on part. And I can't see how it should impact your ability to do a

The DSTs that people invest in through 1031 exchanges all file their own tax return.  So your's is a curious case (and probably shared by more than a few Californians).  It would be worth a second opinion from an accountant.

Revokable trusts typically still qualify, 

I'd bounce back with your CPA and bring up the following

https://www.taxnotes.com/research/federal/irs-private-ruling...

https://www.law.cornell.edu/cfr/text/26/1.121-1

Maybe @Natalie Kolodij can chime in.

I think though as a lay person you have multiple problems here. You dont own the house, so the primary residence exclusion will not come into play. Additionally, having lived in the house while the DST owns it is going to cause you issues I think.

@Kat Hughes I am not a CPA, but the questions I would ask you are the following:

1. Are you filing a tax return for the DST or is it being reported on your 1040?

2. Why not transfer it out of your DST and back into your name for the sale?

Good Investing...

@Kat Hughes, Again my apologies for that.  I was being interviewed on "The Podcast That Would Never End" :).  

My staff tried to respond and I'm so glad I was able to call immediately after I got off the podcast at 12:15 your time (believe me it seemed like an eternity) and talk to you and answer your questions.  Hope that makes up for your inconvenience.

I'll let you update the folks on whether I'm a ghost or not :)

@Kat Hughes, I believe it is indeed !  We're connected now so feel free to reach out at any time.  As you're working toward that sale keep one thing in mind - Your QI for the 1031 has to be in place prior to the closing of the sale.  I still get very sad calls every month from people who just closed their sale and are ready to do their 1031.  All I can do is weep with them a little bit :)

You're getting great advice from other posters but thought I'd offer a different scenario for consideration. If your biggest fear is moving away from aging family members and you only need enough money for a down payment on a new home, consider keeping at least one property as "insurance" to return to the area if needed. If your multi-family property is cash flow positive, by keeping that property you can use the income to help cover expenses while you build your business or while your husband pursues a career change. And when buying a new property where you plan to move, perhaps get one with a guesthouse or ADU. Then you can rent it now to further jumpstart the piano studio business and career change goals while retaining the option to move one or more aging relatives there if needed down the road.

@Kat Hughes

Some of this matters what are the actual tax liabilities.  Looking at your profile, I'm sorry but not immediately tracking...

Looks like the 1.5mil has doubled in value...  Remember, your capital gains tax is BASICALLY your sales price minus your purchase price (technically your cost basis..).  It has nothing to do with your loan which some people for some reason get that confused.

A bunch was mentioned above..  Let me add in this way:  what properties would qualify for the sec121 exclusion--- lived in as primary home for last 2 out of 5 years?  Sounds like that North Hollywood house would qualify.  If so, $500k capital gain would be excluded from tax.  If your capital gain was roughly $760k (1.5mil * 95% for realtor fee  -  $665k), that means only $260k would be taxed at 15% nominally for Federal taxes.  Paying only ~$40k to have that much money is pretty good in my book to get everything free and clear (after you pay off the loan of course)  --- 1500k * 95% - 720k - 40k = $665k.

Then, in two years you can sell your current home...

You could go in reverse order, but its a matter of timing...  when is the 2 of 5 years up?  Can you wait 2 year sto move?

if you 1031, since you have to buy as much property as you are selling, your funds and a loan will be locked up in the next house...  Remember, the 1031 isn't supposed to be used for "cashing out."  You could try a cash out refi...  Anyway, you wanted funds to purchase your next home and have savings and to help out your business.

As for your family, I don't have much to say on this...  Unless you want to help them move and resettle, and assuming they are willing which you said they werent...

Well, of course consult a qualified professional or two..  Good luck.