Lower of the two.

[quote=tnuomarap][quote=SK in CV]Lower of the two.[/quote]

Thanks – that’s what I was afraid of, I thnk these cap gains calcs are roughly correct then.

Original purchase price: $272,000 (not including commissions, etc..)
Sale Price: $333,000
It’s been rented for (5) tax years with an annual depreciation of $10,318

Depreciation recap: 13250
Fed Cap Gain: 6653 (15%)
State (CA) Cap Gain: 14603.25 (15%)
ACA: 0%

I don’t understand why state cap gains so high?[/quote]

fed tax on cap gain is be less than on ordinary income. Ca tax on cap gain is same as ordinary income. Based on those numbers, cap gain should be about $105K. Tax amounts don’t look right. Make sure you deduct costs of sale (commission, etc.) from the cap gain.

So question… Anyone know what a ” Deferred Sales Trust ” is, and how is it different from a 1031 exchange?

[quote=SK in CV][quote=flu]So question… Anyone know what a ” Deferred Sales Trust ” is, and how is it different from a 1031 exchange?[/quote]

A “deferred sales trust” is where the cash goes in between the sale of the 1st property and the purchase of the 2nd property for a 1031 exchange. Typically done by what’s called a 1031 accommodator.[/quote]

Can it be used to defer capital gains to prolong when you need purchase a replacement property ? If so how does it work?

For example, hypothetically, if I think real estate is at peak, and sell now, but want to wait, for example, 2 years before I buy a replacement property, is there any way to defer the capital gains from the sales of the first property by using some legal way to extend a property “exchange”?

[quote=SK in CV]
No can do. Replacement must be identified within 45 days, and transaction closed within 180 days of disposition of original property. These rules (as codified in 1979) are the result of a SC case, a guy named Starker, who attempted just what you’ve described, keeping the funds in hands of the buyer for up to two years and acquiring 12 pieces of replacement properties over that time. Starker partially won his case. Laws were rewritten to allow the deferred exchange with specific rules. Huge case when it went down, with expectations of a huge increase in tax free exchanges. Never really happened. They’re still pretty rare. People just don’t plan that well. Even when they are done, they’re often done wrong.[/quote]

Thanks CV. I’m not planning to sell just because for me, my rentals do pretty well on a cash flow basis, and I’m hoping I can use this as if it’s my private pension for retirement, for some of us that don’t have the luxury of a pension 🙂

I was just curious because the internet is filled with things about “Deferred Sales Trust”, and the way people talk about it suggested it was an alternative to a 1031 exchange. I know, if it’s posted on the internet, it must be true! (lol)…I was just curious if there was some corner case in that is would be an alternative to a 1031, and if so, how it would work, no matter how complicated it would be. But what you are saying is that, there is no alternative to a 1031 exchange.

For example:
http://www.exeter1031.com/deferred_sales_trust.aspx

is suggesting…
[quote]
First, Investors must realize that the Deferred Sales Trust is a relatively new tax-deferral strategy. It should only be used by sophisticated investors who can understand and accept the risk of using a new and untested tax-deferred strategy.

Generally, the 1031 Exchange is a better tax deferred strategy for most investors. However, the Deferred Sales Trust may be an alternative tax-deferred strategy when you do not wish to, or can not, acquire like-kind replacement property through a 1031 Exchange.

[/quote]

That’s what got my attention and curiosity

[quote=flu][quote]
First, Investors must realize that the Deferred Sales Trust is a relatively new tax-deferral strategy. It should only be used by sophisticated investors who can understand and accept the risk of using a new and untested tax-deferred strategy.

Generally, the 1031 Exchange is a better tax deferred strategy for most investors. However, the Deferred Sales Trust may be an alternative tax-deferred strategy when you do not wish to, or can not, acquire like-kind replacement property through a 1031 Exchange.

[/quote]That’s what got my attention and curiosity[/quote]

That is something different. The name seemed to perfectly fit the 1031 accommodator trust. I’m not sure what the upside to it is other than deferring tax and deferring cash. If appreciation remains in the hands of the seller, no way it can pass muster. Sounds like a way for someone else to get a piece of your money. Kind of like paying a third party to help you save money with weekly mortgage payments instead of monthly.