Skip to main content

How To Leverage 1031 Exchanges For Tax Savings

By Paul J. Carroll, CFP®March 28, 2023October 4th, 2023Videos


In the last three videos we’ve talked about real estate investing, capital gains, depreciation, recapture, and how to defer those using 1031 exchanges. As we know, 1031 exchanges defer capital gains on real estate transactions, but sometimes they’re tricky. Today we’re going to talk about some advanced strategies to maximize the benefit of 1031 exchange.

So, you want to do a 1031 exchange. You’ve got the property. You’ve sold it. But for whatever reason, maybe it’s a very rich real estate market, maybe there’s just a lack of inventory, you can’t identify in 45 days, or you can’t close in 180. That may be a financing issue. What are you going to do? Well, all is not lost. There’s actually a strategy called a Delaware Statutory Trust, a DST. It’s a very complex trust, but it’s okay, you’re not inventing it. There are alt investors, there are private investors, who create these Delaware Trusts. They’re invested in real estate to qualify for the 1031 exchange, and you get to enjoy the same tax deferral, the same diversification. Moreover, you get professional management and now you’ve actually turned something that’s a lot of busy work into a passive investment.

The thing with Delaware Statutory Trusts, in my opinion, is that they are badly oversold. And why? Well, usually when something’s oversold it’s because the fees are obscene, and most of the ones out there, they are obscene. Now, we’re a fiduciary firm, we don’t take fees for introductions. We don’t get commissions. And so it’s in our interest to take care of our clients to find the few out there that are actually good products. But even the good ones have other issues. One, if you put your money in a Delaware Statutory Trust or lookalike, you’ve lost control. You’ve put your money into a long-term investment that is very illiquid. And yes, they’ll tell you about how they’ll do distributions and how one day they’ll wrap this up. But remember, these organizations are getting fees from your investment. They are not incentivized to wrap up and close the trust.

So these things could be like Hotel California, you can check out, but you can never leave. And they also sometimes have limited options for investment. But the biggest challenge is the cost structure, and we’ve talked about that, it comes down to selection, and illiquidity. Now, that’s not necessarily terrible. If you’re a retiree, you’re looking for reliable cash flow, you want to roll over the capital gain and you’re going to do the “invest, borrow, and die” strategy to make sure you never pay those taxes. This could be a perfectly legitimate part of a larger portfolio – you just have to go in with your eyes wide open. Avion Wealth is established in an alternative investment platform. We can access quality Delaware Statutory Trusts that mitigate the cons while enjoying this cash flow.

And then there’s always the ultimate, and that is there a way to get rid of this without dying? Is there a way to eliminate capital gains? Yes. The subject of our next video will be what’s called Qualified Opportunity Zones. Since 2017, these have been around. The total elimination of capital gains on an investment rollover. Between now and then, we wish you the best of real estate investing success.



Founder & CEO at Avion Wealth

Paul is the founder and CEO of Avion Wealth, LLC. He leads a team of wealth managers in building and executing financial plans for high net worth individuals and families. Contact Avion Wealth to speak with a financial advisor.